ssrn-4700517 (1)

INSIDER TRADING IN INDIA: A STUDY OF THE
EMERGING ISSUES OF INSIDER TRADING WITH

REFERENCE TO SECURITIES LAWS
DISSERTATION SUBMITTED IN PARTIAL FULFILLMENT OF THE

REQUIREMENT
FOR THE DEGREE OF
MASTER OF LAWS (LL.M.)
(Session 2022-23)
Supervisor Submitted by
Mayank Shrivastava Akshat Mall
Assistant Professor Roll No:- 92
Enrolment ID No- 16/2022/686
Page I of XII
Electronic copy available at: https://ssrn.com/abstract=4700517

HIDAYATULLAH NATIONAL LAW UNIVERSITY
NAYA RAIPUR (C.G.) 492002
DECLARATION
I, Akshat Mall, hereby declare that the Dissertation work titled “Insider Trading in India: A
Study of the emerging issues of Insider Trading with Reference to Securities Laws” is an original
work done by me under the supervision of Mr. Mayank Shrivastava, Hidayatullah National Law
University, Raipur.
I further affirm that to the best of my knowledge, this LL.M. Dissertation does not contain any
part which has been submitted for the award of any degree either in this University or in any
other Institution without proper citations. This dissertation work is done by me in adherence to
the HNLU-Anti-Plagiarism and Academic Integrity Policy 2020-21.
Date: Name & Signature of the Student
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A W U N IV
AL L ER
ON
SI
I
TUL L A H NAT
TY
C H H A T T IS G A
RAIP
DIA
IN
R
YA
DA U
RH
HI
Hidayatullah National Law University

Nava Raipur Atal Nagar, Raipur- 492002 (C.G.)
Phone No. 0771-3057604, 3057603
Email: registrar@hnlu.ac.in, Website: www.hnlu.ac.in
FORWARDING CERTIFICATE
WHEREAS, under clause 9 of the Ordinance Governing LL.M. Degree Course of Study
and Examination, a student is required to write a Dissertation carrying 200 marks on the subject
approved in partial fulfillment of the requirement for the degree of MASTER OF LAWS of the
HIDAYATULLAH NATIONAL LAW UNIVERSITY;
AND WHEREAS, AKSHAT MALL has been permitted to write a Dissertation on
‘INSIDER TRADING IN INDIA: A STUDY OF THE EMERGING ISSUES OF INSIDER
TRADING WITH REFERENCE TO SECURITIES LAWS’ for LL.M. Examination of the
YEAR 2022 – 2023 of the HIDAYATULLAH NATIONAL LAW UNIVERSITY;
NOW THEREUPON, AKSHAT MALL has submitted the said dissertation which is
being forwarded to the CONTROLLER OF EXAMINATION, HIDAYATULLAH
NATIONAL LAW UNIVERSITY for necessary action.
Date: ………………
Supervisor:
Name and Designation
Page III of XII

TABLE OF CONTENTS
ACKNOWLEDGEMENT…………………………………………………………………………........VIII
LIST OF ABBREVIATIONS……………………………………………………………………………..IX
PREFACE……………………………………………………………………………………………...….XI
CHAPTER I - INTRODUCTION TO INSIDER TRADING……………………………………1
1.1 RESEARCH PROBLEM…………………………..………………………………….4

1.2 SIGNIFICANCE OF RESEARCH…………………………..………………………..4
1.3 THEORITICAL CONNECTION…………………………..…………………………5
1.4 RESEARCH OBJECTIVES…………………………..……………..………………..5
1.5 RESEARCH QUESTIONS…………………………..……………..………………...6
1.6 HYPOTHESIS…………………………..……………..……………......………….....6
1.7 SCOPE…………………………..……………..……………..……………………….6
1.8 LIMITATIONS…………………………..……………..……………..……..………..6
1.9 LITERATURE REVIEW…………………………..……………..…………………..7
1.10 PROPOSED RESEARCH METHODOLOGY……………………………………...13
1.11 UNPUBLISHED PUBLIC SENSITIVE INFORMATION…………………………14
1.12 INSIDER…………………………..……………..……………..……………………14
1.13 INSIDER TRADING – WHEN IT IS LEGAL & WHEN NOT?………………...…15
1.14 WHY IS INSIDER TRADING CONSIDERED UNETHICAL?……………………17
1.15 EFFICACY OF CIVIL VERSUS CRIMINAL PROHIBITION…………………….19
CHAPTER II - CONCEPT, HISTORY & EVOLUTION OF INSIDER TRADING IN

INDIA………………………..………………………………………………………………..…20
2.1 HOW DID IT START?………………………………………………………………21

2.2 BOMBAY SECURITIES CONTRACT ACT 1925…………………………………22
2.3 MORRISON COMMITTEE 1936…………………………………………………...23
2.4 DEFENCE OF INDIA ACT 1939…………………………………………………...23
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2.5 CAPITAL ISSUES CONTROL ACT 1947…………………………………………24
2.6 THOMAS COMMITTEE 1948……………………………………………………...24
2.7 GORWALA COMMITTEE 1951…………………………………………………...25
2.8 BHABHA COMMITTEE 1952……………………………………………………...26
2.9 SECURITIES CONTRACT (REGULATION) ACT 1956………………………….26
2.10 SACHHAR COMMITTEE 1978…………………………………………………….26
2.11 PATEL COMMITTEE 1986………………………………………………………...27
2.12 HUSSAIN COMMITTEE 1989…………………………………………………......27
2.13 JOINT COMMITTEE TO ENQUIRE INTO IRREGULARITIES IN SECURITIES
1992…….…………………………………………………………………………….27
2.14 SECURITIES EXCHANGE BOARD OF INDIA ACT 1992………………………28
2.15 SEBI (INSIDER TRADING) REGULATIONS 1992………………………………29
2.16 BIRLA COMMITTEE 1999…………………………………………………………30
2.17 SODHI COMMITTEE 2013…………………………………………………………31
2.18 COMPANIES ACT 2013……………………………………………………………31
2.19 PROHIBITION OF INSIDER TRADING REGULATIONS 2015…………………32
2.20 VISWANATHAN COMMITTEE 2015……………………………………….…….33
2.21 PROHIBITION OF INSIDER TRADING REGULATION (AMENDMENTS) 2018
– 2022…………………………………………………………………………...……33
2.22 FINAL REMARKS…………………………………..…………………...…………34
CHAPTER III - LEGAL FRAMEWORK FOR INSIDER TRADING IN INDIA……………35
3.1 COMPANIES ACT 2013……………………………………………………………36

3.1.1 DEFINITION OF INSIDER TRADING & PUBLIC SENSITIVE
INFORMATION, PUNISHMENT FOR INSIDER TRADING UNDER
COMPANIES ACT 2013……………………………………………………36
3.1.2 POWERS OF CENTRAL GOVERNMENT FOR CURBING INSIDER
TRADING……………………………………………………………………37
3.2 SECURITIES EXCHANGE BOARD OF INDIA ACT 1992………………………39
3.2.1 FUNCTIONS OF BOARD…………………………………………………..39
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3.2.2 PROHIBITION OF INSIDER TRADING, FRAUDULENT ACTIVITIES &
OTHER UNFAIR PRACTICES…………………………………………….40
3.2.3 MEASURES TO TACKLE INSIDER TRADING & OTHER UNFAIR
PRACTICES…………………………………………………………………40
3.2.4 POWER OF INVESTIGATION…………………………………………….42
3.2.5 CEASE AND DESIST PROCEEDINGS……………………………………42
3.2.6 PROHIBITION ON INSIDER TRADING………………………………….43
3.2.7 PENALTY IMPOSED FOR AN OFFENCE OF INSIDER TRADING……43
3.2.8 IMPRISONMENT & PENALTY……………………………………………44
3.3 SECURITIES EXCHANGE BOARD OF INDIA (PROHIBITION ON INSIDER
TRADING) REGULATION 2015…………………………………………………..45
3.3.1 DEFINITION CLAUSES……………………………………………………45
3.3.2 RESTRICTIONS IMPOSED ON INSIDERS……………………………….46
3.3.3 TRADING DURING POSSESSION OF UPSI (EXCEPTIONS)….……….47
3.3.4 TRADING PLANS…………………………………………………………..48
3.3.5 DISCLOSURES TO BE MADE BY INSIDER FOR TRADING………….48
3.3.6 DISCLOSURES REQUIRMENTS BY CERTAIN PERSON(S) ………….49
3.3.7 CODES OF CONDUCT AND FAIR DISCLOSURE………………………49
3.3.8 INSTITUTIONAL MECHANISM TO PREVENT INSIDER
TRADING………………………………………………………………...….50
3.3.9 SCHEDULES………………………………………………………………..50
CHAPTER IV - JUDICIAL PRONOUNCEMENTS RELATED TO INSIDER

TRADING……………………………………………………………………………………..…52
4.1 MAJOR FINDINGS IN THE LANDMARK JUDGMENTS……………………….54

4.2 FOREIGN CASES…………………………………………………………………...65
CHAPTER V - EMERGING ISSUES OF INSIDER TRADING……………………………...67
5.1 EVOLVING STANDARDS OF PROOF……………………………………………68

5.1.1 RAJEEV VASANT SHETH v SEBI…………………………………….68
5.1.2 BALRAM GARG v SEBI……………………………………………….69
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5.1.3 PIA JOHNSON v SEBI………………………………………………….70
5.1.4 HINDUSTAN LEVER LTD v SEBI…………………………………….71
5.1.5 SAMEER ARORA v SEBI………………………………………………72
5.1.6 RELIANCE INDUSTRIES LTD v SEBI………………………………..72
5.1.7 PREPONDERANCE OF PROBABILITIES………………………….…73
5.1.8 REASONABLE EXPECTATION…………………………………….…74
5.1.9 TRADE MADE FOR CORPORATE PURPOSES DOES NOT AMOUNT
TO A VIOLATION OF PIT REGULATIONS………………………….75
5.1.10 FINAL REMARKS………………………………………………….......75
5.2 REGULATION OF INSIDER TRADING: ASCERTAINING THE
EFFECTIVE………………………………………………………………………....77
5.2.1 INTANGIBILITY, FIRST ACCESSING PERSON & INFORMATION
NETWORK………..……………………………………………………..77
5.2.2 CIRCUMSTANTIAL EVIDENCE, SUBJECTIVISM, & STRATEGIC
BEHAVIOR……………………………………………………………...79
5.2.3 FINAL REMARKS…………..………………..………………………...81
5.3 ISSUES OF INSIDER TRADING AS A WHITE COLLAR CRIME………………83
5.3.1 POSITION IN INDIA……………………………………………………84
5.3.2 INSIDER TRADING AS WHITE COLLAR CRIME…………………..85
5.3.3 FINAL REMARKS……………………………………………………...88
CHAPTER VI – CONCLUSION & SUGGESTIONS…………………………………………90
6.1 SEBI’S NOT UPTO THE MARK APPROACH……………………………………90

6.2 SEBI 2021-2022 ANNUAL REPORT & CURRENT SITUATION………………..94
6.3 INSIDER TRADING – AN UNWINNABLE WAR wr.t STANDARDS OF
PROOF……………………………………………………………………………….95
6.4 POSSIBLE SOLUTIONS……………………………………..……………………..97
6.5 FINAL REMARKS………………………………………………………………….99
LIST OF REFERENCES/ BIBLIOGRAPHY……………………………………….…………101
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ACKNOWLEDGMENT
First and foremost, I am grateful to my supervisor, Mr. Mayank Shrivastava, Assistant Professor
of Law, HNLU, for his guidance and encouragement throughout the entire process. His expertise
and willingness to share his knowledge have been invaluable, and I have learned so much from
his insights and feedback.
I would express thanks to other faculty members for their encouragement, who provided valuable
feedback on various aspects of the research and helped me to refine my ideas.
To my family and friends, thank you for your unwavering support and understanding. Your
encouragement and belief in me have sustained me through the long hours of writing and
research.
Finally, I would like to thank everyone who generously gave their time and shared their
experiences with me. Their insights and perspectives have enriched this research and provided
valuable contributions to the field.
To everyone who has contributed to this dissertation in ways both big and small, thank you from
the bottom of my heart.
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LIST OF ABBREVIATIONS
WORDS ABBREVIATIONS
And &
Adjudicating Officer AO
Bombay Stock Exchange BSE
Chief Executive Officer CEO
Companies Act CA
Code of Conduct CoC
Company Co.
Compliance Officer CO
Chapter Ch.
High Court HC
Indian Rupees INR
Issue of Capital and Disclosure Requirements ICDR
Limited Ltd.
Managing Director MD
Ministry of Corporate Affairs MCA
National Stock Exchange NSE
Number No.
Page Pg.
Paragraph Para.
Private Pvt.
Prohibition on Insider Trading PIT
Regulation Reg.
Public Sensitive Information PSI
Securities and Exchange Commission SEC
Securities Appellate Tribunal SAT
Securities Exchange Board of India SEBI
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Section Sec.
Securities Exchange Board of India Act, 1992 SEBI Act
Securities Contracts (Regulation) Act, 1956 SCRA
Supreme Court SC
Trading Plan TP
United Kingdom U.K
United States of America U.S
Unpublished Public Sensitive Information UPSI
Volume Vol.
White Collar Crime WCC
Whole Time Members WTM
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PREFACE
In recent years, Insider Trading has emerged as one of the most pressing issues in securities
markets worldwide. The phrase "insider trading" basically is the practice of dealing securities by
an individual(s) having means or direct control over material information that could influence the
value of those securities and is not available in the public domain, and this information is used to
make profits or avoid losses. It is considered an illegal means to make gains/ avoid losses in
many countries as it continues to be a major challenge for regulators and law enforcement
agencies due to the complexity and the difficulty of detecting and prosecuting it.
A fair and just securities market require a synergetic relationship between the market regulator
and the market participants. One of the biggest impediments to forming a synergetic and
reciprocal relationship is information asymmetry and its abuse. Insiders with access to superior
information take advantage of such information asymmetry to their advantage at the loss of other
market participants. Thus, Insider trading is one of the biggest maladies of the securities market
and needs to be curbed to sustain the integrity of the market and protect the interests of
investors.
This dissertation aims to explore the emerging issues related to insider trading and their
implications on the securities market. It will take a look into the evolution of the Insider Trading
legal regime in India. Specifically, the study will investigate the legal framework and
enforcement mechanisms for insider trading and identify any gaps or weaknesses in the existing
regulatory framework. Additionally, the research will analyze the emerging issues of insider
trading and the challenges they pose for regulatory agencies.
The study is divided into six chapters, each addressing a specific aspect of Insider trading.
The first chapter provides an overview of the research and includes an introduction to the topic
along with the basic terminologies such as UPSI & Insiders. At the end of the Chapter, certain
concepts like the legality of Insider Trading, the ethical basis of Insider Trading, and the efficacy
of civil versus criminal prohibition on Insider Trading have been discussed.
The second chapter examines the historical evolution of the concept of Insider Trading along
with necessary legislation enacted to curb its practice, successive amendments in the law, the
Page XI of XII

reason behind such amendments, along with all the Committees that were set up to analyze
various issues of Securities Law in India.
The legal provisions have been dealt with in the third chapter. It includes the fundamental
structure of law that covers Insider Trading and allied subjects. It entails definition, prohibitory
provisions, penalties, etc. It primarily features SEBI Act & PIT Regulations.
The next chapter focuses on judicial precedents on Insider Trading. The major findings of the
cases have been jotted down that have paved the path for the growth of Securities Law in India
and a few foreign judgments have also been included.
The fifth chapter talks about the challenges faced by regulators in detecting and prosecuting
Insider Trading as the standard to prove the offence has risen. The second issue discussed the
issue of Regulation faced by SEBI and the last issue deals with Insider Trading as WCC.
The final part includes a conclusion along with certain suggestions based on the research of this
dissertation that might help improve the situation of Insider Trading. It is followed by
Bibliography at the end.
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_________________________________________________
CHAPTER I
INTRODUCTION TO INSIDER TRADING
_________________________________________________
Insider trading can be described as an offence in the field of securities law wherein an
individual(s) who has the means/ access to gain sensitive information which can influence the
prices of the securities that is publicly non-available, and the individual uses this information to
make trades in securities to make profits or avoid losses at the expense of other market
participants. The Securities & Exchange Board of India1 (SEBI) is the regulatory body that has
been bestowed with the powers to moderate the securities market and acts as a watchdog over the
commission of offences of Insider Trading as it affects the securities market at large. In
straightforward terms, it is "trading in securities by insiders who are in possession of or have
access to unpublished price-sensitive information (UPSI)"2.
Insider trading is performed by person(s) who are also known as insiders who have unique
access to specific types of strategic information about a company's stocks due to their
employment/ connection with the company. It is illegal in India and can result in significant fines
and penalties, as well as imprisonment. In other words, Insider trading is trading made by an
insider or someone who is a linked person(s), based upon the knowledge gained while
performing the insider's job.
While prima facie it may seem that only financial elements of the security market are affected by
Insider Trading but that is not the case. There is a breach of trust or in other words, a fiduciary
obligation on the part of the Insider when acting upon the UPSI of shares. This results in not only
monetary loss to the public but the trust amongst the members in the share market of the
company also take a hit and they might not indulge in future transactions when they know that
they don’t have fair opportunities to compete in the market. There is a sense of distrust among
1
Constituted on the Resolution by Department of Economic Affairs No.1 (44) SE/86.
2
Anil Kumar, “An Empirical study of Legal Insider Trading in India”, SSRN, July 2018, available at -
Determinants of Legal Insider Trading: Empirical Evidence from India by M Anil Kumar, Rajesh H. Acharya ::
SSRN..
Page 1 of 104

the investors as they believe that the playing field is not leveled and some individual(s) are in an
advantageous person to significantly avoid losses or gain profits.
Insider Trading gives people who have access to price information that is of sensitive nature and
is unpublished, hence giving an unfair edge to them over the general public as this information is
not published in public domains. When an insider manipulates a transaction that violates the
obligations that person has, it results in an overall reduction of trust in the security market, as the
insiders usually are employed in the company and owe a fiduciary duty towards the company
itself and the potential investors3. Knowing a company's confidential data can have a huge
impact on whether or not you invest and profit 4.
As it provides certain investors with an unfair edge in the stock market, it is considered unlawful
in the eyes of law. SEBI has strict regulations in place to prevent insider trading and monitors
trading activities closely to detect any suspicious activities.
Additionally, insider trading can lead to a misallocation of resources, as capital flows to

companies based on manipulated or incomplete information, rather than on their true
performance and prospects. An act of insider trading can result in severe lawful and reputational
consequences for the individual(s) as well as the firm. Therefore, studying insider trading can
help to identify the causes and consequences of this practice, and develop effective measures to
prevent and deter it5.
Thus, an ever-present requirement to holistically analyze the entire insider trading regime in
India is always needed as it is a type of financial transgression that undermines the fairness and
integrity of financial markets and it evolves with the amendments in law. When insiders trade
based on information that is not public, they have certain unfair advantages over others, as they
are aware of certain information which the rest are not, which can result in significant losses for
those who are devoid of such information. This can erode the trust and confidence of the
investors and public in the stock market, which is crucial for its stability and growth.
3
P Reddy Sathyanarayan, “Initiatives of SEBI in regulating insider trading practices in India”, Shodganga, 2019.
4
Arjun Nihal Singh, “Insider trading- Analysing the Indian Perspective”, SSRN, 2014, available at - Insider
Trading - Analysing the Indian Perspective by Arjun Singh :: SSRN.
5
Rojina Thapa, “Insider Trading: A Brief Overview of Legal Regime in USA, UK, India and Nepal”, Economic
Article Special Issue, Vol. 38, No. 293, 2010, available at - Insider Trading: A Brief Overview of Legal Regime in
USA, UK, India and Nepal by Rojina Thapa :: SSRN.
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The provisions related to Insider Trading have been mentioned in the Securities & Exchange
Board of India Act, 19926 (SEBI Act) mainly but it has been dealt with in detail by the
Regulations passed by SEBI in 2015 called SEBI (Prohibition of Insider Trading) Regulations 7.
There have been various amendments made to the regulations to broaden their scope and make
them more dynamic. It is observable from the various Amendments in the PIT Regulations that
SEBI is making an attempt to modify and adapt to the Insider Trading issues of the current times
and trying to make the market a more regulated and safer place for investors to put in their hard-
earned money.
6
SEBI Act, 1992, No 15, Acts of Parliament, 1992.
7
SEBI (Prohibition of Insider Trading) Regulations, 2015, Notification No. LAD-NRO/GN/2014-15/21/85.
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1.1 RESEARCH PROBLEM
Insider trading is a complex issue that has significant implications for the fairness and efficiency
of participation in the securities market for common investors. This unauthorized trading of
company securities based on non-public information can result in significant gains for insiders
while leading to losses for unsuspecting investors. This raises serious concerns about market
integrity and the potential for insider trading to undermine public trust in the stock market. To
address this issue, it is crucial to understand the extent of insider trading in India and its impact
on market integrity and fairness.
Therefore, the research problem is focused on investigating the prevalence of insider trading and
its implications for SEBI to provide insights into regulatory measures that can help deter and
prevent this practice. Hence, it has become essential to identify the loopholes in the existing
insider trading regime in India that allows for issues like enforcing Insider Trading as a WCC &
evolution of the standard of proof acceptable in a Court of Law, whether the Insider Trading
Regulations are effective or not.
1.2 SIGNIFICANCE OF RESEARCH
Research on insider trading is significant for several reasons.

Firstly, it helps to shed light on the extent and potential consequences arising out of the
commission of an act of insider trading on the functioning and integrity of the securities market
and the interests of investors, which is critical for policymakers and regulators to develop
effective measures to deter and prevent this practice.
Second, it helps to identify the factors that contribute to insider trading, such as weak regulatory
frameworks, corporate governance issues, etc, which can aid in targeted interventions to address
these underlying issues.
Third, research on insider trading can help to increase public awareness and understanding of
this issue, which can lead to greater demand for stronger enforcement and regulations.
Ultimately, the research can contribute to a more fair and efficient stock market that is better
equipped to guard all stakeholders and their interests. Hence, an imperative need to identify the
loopholes in the existing insider trading regime in India arises that allows for issues like Insider
Trading in the Event of Mergers & Acquisitions, enforcing Insider Trading as a WCC &
evolution of the standard of proof acceptable in a Court of Law.
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1.3 THEORETICAL CONNECTION
Theoretical connections to insider trading can be traced to several fields, including finance, law,
and ethics. Some of the theoretical connections are as follows:
Market efficiency: Insider trading can affect market efficiency by distorting prices and reducing
the informational efficiency of markets. Researchers can analyze and predict the outcome of acts
of insider trading bearing upon the regulatory and efficiency powers of the regulatory body in the
securities market and explore ways to prevent such practices.
Legal and regulatory frameworks: Insider trading is illegal in many countries, and laws and
regulations are in place to prevent it. Researchers can study the effectiveness of these legal and
regulatory frameworks and suggest ways to improve them.
Ethics and corporate governance: Insider trading raises ethical concerns and can undermine the
trust of investors in the financial markets. Researchers can study the ethical implications of
insider trading and explore ways to promote better corporate governance practices.
Risk management: Insider trading can pose a significant risk to investors and the financial system
as a whole. Researchers can study the risks associated with insider trading and explore ways to
manage them.
1.4 RESEARCH OBJECTIVES
The main objectives are –
 To understand the origin, history & evolution of the Insider Trading regime,
 To study legal provisions governing the regulation of insider trading practices in the Indian
securities market,
 To analyze the major judicial precedents and determine the principles that have been
pronounced by the Courts,
 To determine the evolving standards of proof needed to prove the crime in a Court of Law,
 To study the effectiveness of the Insider Trading preventive Framework,
 To identify issues of enforcement of Insider Trading as a White Collar Crime.
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1.5 RESEARCH QUESTIONS
The main questions are –
 What is the point of origin and how the Insider Trading Framework evolved in India?
 What is the legal regime for the prevention of Insider Trading?
 What do the recent judgments say about the production of proofs in cases of Insider Trading
and whether it has become difficult to prove the crime of insider trading?
 What are the elements/ evidence that does/ does not constitute a crime of Insider Trading?
 Whether Insider Trading Framework could be effective?
 Why is it difficult to prove Insider Trading as White Collar Crime?
1.6 HYPOTHESIS
The difficulty in proving offences of commission of Insider Trading in Courts has led to an
evolution of the standard of proof required to prove Insider Trading, due to the intricate
interpretation of the evidence by the Courts, thereby making it harder to prosecute Insider
Trading.
1.7 SCOPE
This study will focus on the offence of insider trading and the effectiveness of its preventive
regime in India to identify loopholes or flaws in the legal framework. It will investigate the legal
framework and enforcement mechanisms for insider trading, including the relevant statutes and
case laws. The study will use an analytical and doctrinal research design and will collect data
through legal document analysis, including court decisions and regulatory reports.
1.8 LIMITATIONS
The study will not investigate the potential effects of insider trading on securities market
outcomes or investor behavior. The research will not cover other countries beyond India but may
refer to some principles propounded in foreign judgments. The research will not cover other
types of financial misconduct beyond insider trading. The study is based on doctrinal
methodology and is limited to theoretical knowledge.
Page 6 of 104

1.9 LITERATURE REVIEW
A. Books & Commentaries

 Bhuwneshwar Mishra’s book titled, “Law Relating to Insider Trading: A
Comprehensive Commentary on SEBI (Prohibition of Insider Trading) Regulations
2015”8, is one of the primary texts that are available on the topic of Insider Trading as it
was released in the year the Insider Regulations were released. The book covers the
history, objectives, scope, applications, and the need for these rules for the development
of the Corporate Sector in India. Bhuwneshwar attempts to provide an in-depth
breakdown of the framework surrounding the offence. The book explores the evolution
of insider trading regulation and various challenges and limitations of enforcing the
legal framework laws. Overall, "Law Relating to Insider Trading" gives a holistic
breakdown of financial misconduct and the attempt made at its regulation. The author
highlights the challenges and limitations of current regulation and proposes potential
solutions to improve its efficiency. The book is a valuable resource for policymakers,
practitioners, and academics interested in the topic. The book concludes by proposing
potential solutions to make progress in bringing efficiency to insider trading regulation.
These solutions include increasing the penalties for insider trading, improving the
efficiency of regulatory agencies, and increasing public awareness and education on
insider trading.
 The author Kondaiah Jonnalagadda in his book “Securities Law”9 has attempted to
discuss the combined effect of Securities Law and Company Law w.r.t security-
corporate matters in India. He has discussed the topic with a detailed approach and
proposed potential solutions including increasing the penalties for insider trading,
improving the efficiency of regulatory agencies, and increasing public awareness and
education on insider trading. The book gives a holistic and comprehensive overview of
the legal regime and offers practical guidance on compliance with insider trading
regulations. The book is suitable for both legal professionals & non-lawyers alike.
8
Bhuwneshwar Mishra, Law Relating to Insider Trading: A Comprehensive Commentary on SEBI (Prohibition of
Insider Trading) Regulations 2015, Taxmann Publications, 1st Edition, 2015.
9
Kondaiah Jonnalagadda, Securities Law, Lexis Nexis Publications, 1st Edition, 2015.
Page 7 of 104

 The book titled, “SEBI Act: A Legal Commentary on SEBI Act, 1992”10, authored by
Sumit Agarwal & Robin Joseph Baby, talks in detail about the legal regime under the
Act and SEBI’s role as legislator, executor, and judge to protect the securities market. It
takes the use of various judicial precedents to help explain the topic in detail along with
the amendments made and the reasoning behind making such changes. The authors of
the book believe that each provision of the SEBI Act is a subject of study in itself, and
through this book, they have made an attempt to present a detailed critique of each such
subject matter which might not have been discussed before. The book begins by
defining insider trading and providing examples of its occurrence in India. The author
then reviews the legal framework surrounding insider trading, including SEBI (PIT)
Regulations, 2015. The authors also examine the various legal tests used to determine
whether an individual has engaged in insider trading and then explore issues &
limitations of enforcing insider trading laws. These challenges include the difficulty in
proving insider trading, the potential for regulatory capture, and the lack of effective
enforcement mechanisms. The author also examines the potential unintended
consequences of insider trading laws, such as the chilling effect on legitimate market
activities and the potential harm to market efficiency and liquidity.
 “Cyril Amarchand Mangaldas’s Treatise on Securities Law”11 is a book edited by Cyril
Shroff & U.K Sinha and of the recent works on the securities legal framework of India.
With a keen analysis of the evolution of the securities law in India, bolstered by
relevant discussions around how the law has played out in practice, this treatise seeks to
give a panoramic view of the regime on the securities market in India. It dives deep into
the key legislations governing the sphere, providing both theoretical and practical
know-how to its readers. It is a comprehensive book that provides a detailed analysis of
the Indian securities law framework. The book covers a wide range of topics related to
securities law, including insider trading, public offerings, and regulatory compliance.
The section on insider trading provides a thorough examination of the legal regime
surrounding insider trading. They explain the legal definition of insider trading and
10
Sumit Agarwal & Robin Joseph Baby, SEBI Act: A Legal commentary on SEBI Act, 1992, Taxmann Publications,
1st Edition, 2011.
11
Cyril Shroff & U.K Sinha, Cyril Amarchand Mangaldas’s Treatise on Securities Law, Thomas Reuters
Publications, 1st Edition, 2021.
Page 8 of 104

provide examples of classic, misappropriation, & tipper/tippee kinds of insider trading.
The authors explain the various disclosure requirements & restrictions imposed on
insiders and the penalties for violating these regulations. In addition, the book provides
practical guidance on compliance with insider trading regulations, including how to
identify and manage insider trading risks, and how to implement effective compliance
programs.
 Gaurav Pingle in his book titled, “Handbook on Securities Laws”12, has emphasized the
important part of securities law from the POV of Company Secretaries and Compliance
Officers and has discussed various allied legislations like Depositories Act and the
various Regulations released by SEBI. He believes securities law must be understood
after complete comprehension of the important corporate law concepts and has made an
attempt to include the most recent updates and amendments in the laws to keep up to
date with the current regime of the securities law framework in India.
B. Articles
 Robert W. McGee and Walter E. Block in their article "An Ethical Look at Insider
Trading"13 provide a critical examination of the ethical implications of insider trading.
The authors present arguments from both sides of the debate and evaluate them based
on various ethical theories. The authors begin by defining insider trading and providing
examples of its occurrence. They then explore the arguments in favor of insider trading,
which include the idea that it provides an incentive for individuals to gather and
disseminate valuable information. The authors also address the argument that it is a
victimless crime, as it involves consenting parties who are trading based on their own
informed decisions. However, the authors then present counterarguments against
insider trading, including the idea that it undermines the fairness and integrity of the
market, as well as the concept of "fiduciary duty" - the obligation of insiders to act in
the best interests of the company and its shareholders. The authors also examine the
potential harm caused to other market participants who do not possess the same
information and its impact on public trust and confidence in the market. Throughout the
article, the authors analyze the ethical implications of insider trading using various
12
Gaurav Pingle, Handbook on Securities Laws, Bloomsbury Publications, 1st Edition, 2021.
13
Robert W. McGee and Walter E. Block, “An Ethical Look at Insider Trading”, Insider Trading: Regulatory
Perspective, ICFAI University Press.
Page 9 of 104

ethical theories, including utilitarianism, deontology, and virtue ethics. They conclude
that while insider trading may have some potential benefits, it ultimately violates
fundamental ethical principles and should be prohibited. The authors effectively present
and evaluate arguments from both sides of the debate, and their analysis is supported by
a thorough review of relevant literature and ethical theories.
 In the article "Can Regulation of Insider Trading Be Effective?"14 Dr. Alexandre Padilla
explores the efficiency of preventive regulations. The author provides a critical analysis
of the regulatory approaches to insider trading and evaluates their effectiveness based
on empirical evidence. The article begins by defining insider trading and its various
forms, including illegal insider trading, legal insider trading, and the use of inside
information for market manipulation. The author also critiques the assumptions
underlying insider trading regulations, including the idea that insider trading harms &
undermines investor confidence. He suggests that these assumptions may not hold in
reality and that insider trading may benefit the market by providing liquidity and
improving price discovery. However, the author acknowledges that insider trading can
be harmful in some cases, particularly when it involves selective disclosure of material
non-public information. He proposes a market-based solution to this problem, in which
issuers should disclose all material information in a standardized manner. The author
also challenges the assumptions underlying the laws and suggests alternative solutions
to prevent harm from insider trading.
 In the article "Is the Law Effective in Protecting Markets from Insider Trading?"15 Dr.
Georgios I. Zekos evaluates the effectiveness of legal measures in preventing and
deterring insider trading. The author provides a critical analysis of the legal framework
and explores various challenges and limitations of enforcing these laws. The article
begins by defining insider trading and providing examples of its occurrence. The author
also reviews the various legal tests used to determine whether an individual has
engaged in any form of financial misconduct. The author argues that while the law
provides a strong deterrent effect against insider trading, its effectiveness is limited by
14
Dr. Alexandre Padilla , “Can Regulation of Insider Trading Be Effective”, Insider Trading : Regulatory
Perspective, ICFAI University Press.
15
Dr. Georgios I. Zekos, “Is the Law effective in protecting markets from insider trading?”, Hertfordshire Law
Journal, Volume 3, Issue 2-2005, pg 2-17, 2005.
Page 10 of 104

various challenges, including the difficulty in proving insider trading, the lack of
international coordination and cooperation, and the potential for regulatory capture. The
author suggests that these challenges may result in inconsistent enforcement and
arbitrary outcomes. The author also explores the potential unintended consequences of
insider trading laws, such as the chilling effect on legitimate market activities and the
potential harm to market efficiency and liquidity.
 In "The Future of Insider Trading"16 by Juliette Overland, the author provides an
examination of the evolving landscape of insider trading regimes and explores potential
future developments in this area. The article examines the various challenges and
limitations of the current regulatory framework and proposes potential solutions to
improve the efficiency of preventive insider trading regulation. The article begins by
defining insider trading and providing examples of its occurrence. The author also
explores the challenges and limitations of current insider trading regulation, such as the
difficulty in detecting and prosecuting insider trading, the potential for regulatory
capture, and the lack of international cooperation and coordination. The author then
proposes potential solutions to improve the effectiveness of insider trading regulation.
These solutions include increasing the penalties for insider trading, implementing
stricter disclosure requirements, and improving enforcement mechanisms. The article
concludes by suggesting that the future of any preventive regulation will rely upon a
combination of lawful, technological, and cultural factors. The author suggests that
while insider trading is unlikely to ever be fully eliminated, a combination of legal
reforms, technological advancements, and cultural shifts may progress the efficiency of
the insider trading regime to reduce its occurrence.
 Marc I. Steinberg, in the article "Insider Trading — A Comparative Perspective"17,
provides a comparison-based analysis of preventive laws across different countries. It
article explores the similarities and differences in the legal framework and regulatory
approach to insider trading in various jurisdictions. The article begins by defining
insider trading and providing examples of its occurrence. The author then reviews the
16
Juliette Overland, “The Future of Insider Trading”, Insider Trading: Regulatory Perspective, ICFAI University
Press.
17
Marc I. Steinberg, “Insider Trading — A Comparative Perspective”, Insider Trading: Regulatory Perspective,
ICFAI University Press, 2007.
Page 11 of 104

legal framework surrounding insider trading in different countries. The author
compares and contrasts the regulatory approach in each country, highlighting the
similarities and differences in the legal tests used to determine insider trading, the
penalties for performing insider trading, and the effectiveness of enforcement. He also
examines the challenges and limitations of regulating insider trading across different
jurisdictions. The author suggests that differences in legal frameworks, cultural norms,
and regulatory structures may make it difficult to achieve a uniform approach to insider
trading regulation. Overall, the article provides a well-researched and informative
comparative analysis of the preventive legal regime across different countries. He
highlights the similarities and differences in the legal framework and regulatory
approach to insider trading in various jurisdictions and explores the challenges and
limitations of regulating insider trading across different cultures and legal systems.
C. Cases
 The first case is Rajeev Vasant Sheth v. SEBI18, in this case, the SAT quashed the
decision passed by the WTM, which found the promoters of the company guilty of
participating in the offence of Insider Trading and imposed a heavy penalty. The brief
facts are as follows, the company while facing certain financial difficulties held some
sales of shares so that the sum could be infused into the capital of the company which
was held to be permissible under the regulations. SEBI in its arguments alleged that the
said actions violated Regulation 4 of the Prohibition of Insider Trading Regulations.
 The second case we are going to refer to is, Balram Garg v. SEBI19, in this case, it was
alleged by directors of PC Jewellers, that their relatives holding shares in the company
were involved in the crime of insider trading. The SAT believed that the allegations
made were correct and imposed fines on the guilty party who wasn’t content with the
decision and filed an appeal in the Supreme Court.
 Our next case is Pia Johnson vs. SEBI20, in this case, Pia that is the appellant along with
her husband were employees at Indianbulls Company and this company had a
subsidiary named India Land and Properties Limited (ILPL) in which the parent
company wanted to sell their 100% investment. Now, Pia and her husband bought
18
Rajeev Vasant Sheth v. SEBI, Appeal No. 297 of 2020.
19
Balram Garg v. SEBI, 2022 SCC Online SC 472.
20
Pia Johnson vs. SEBI, Appeal No. 59 of 2020.
Page 12 of 104

shares of this subsidiary company, and subsequently on an investigation by SEBI it was
held that the transactions that were made by the parties were after they got knowledge
of UPSI of the subsidiary company. The WTM passed an order against the parties but
SAT was of a different opinion and set aside the earlier order made by them.
 In Rakesh Agarwal v SEBI21, the Tribunal declared, “the insiders receive UPSI by
virtue of their connection and for corporate purposes only, such insiders owe a
fiduciary duty to the company not to misuse such information for an unlawful purpose
i.e. to make secret profits or personal gains for themselves22. Such insiders are either
required to disclose the said UPSI or to abstain from acting on the said
information/dealing in such securities altogether. This requirement has come to be
known as the ‘disclosure or abstain’ rule.”23 It can be ascertained that people who trade
based on UPSI as opposed to those who have suffered due to the absence of it in the
public domain stand on completely polar opposite footing. One gains profit while the
other suffers due to wrongful conduct and violation of fiduciary obligation. Therefore,
the disclosure or abstain rule has become very important to safeguard the interests of
the investors and the company.
1.10 PROPOSED RESEARCH METHODOLOGY
The doctrinal nature of this dissertation makes the research restricted only to the primary and
secondary sources like acts, judgments given by the courts, books, etc. All the data collected
from the sources have formed part of the research in the dissertation. Both descriptive and
explanatory research methodologies have been used to interpret and reproduce the data for the
dissertation.
21
Rakesh Agarwal v SEBI, Appeal No. 33 of 2001.
22
Chiarella v. US, 455 US 222.
23
supra 21, pg 25.
Page 13 of 104

Before we move ahead, we need to learn the two basic terminologies and concepts that are
relevant to Insider Trading in brief, which will help us better understand the topic at hand.
1.11 UNPUBLISHED PRICE SENSITIVE INFORMATION24
Unpublished Price Sensitive Information (UPSI) is cost-sensitive data about the corporate
functions of a company that is yet to be accessible freely by anyone, is connected to the
company's choices, and is usually related to any activity that causes alteration of shares prices of
a company in the market 25. UPSI includes “financial statements, dividend declarations, public
rights issues, merger or amalgamation information, stock buy-backs, information on de-mergers,
policy revisions, and changes in the company's operations.”26 Insider trading is a method of
unfair trading that involves the use of UPSI. It is not only unethical but also morally wrongful to
utilize such knowledge in the market to get an unjust benefit over those without the information.
The insiders of a company are allowed to make trades in their company's shares only on the
condition that all the transactions thus made will be disclosed in a record to ensure nothing
illegal occurred while the transactions occurred. SEBI along with its laws and constant
regulations attempts to curb the crime of Insider Trading so that the market can be protected and
is safe for the investors too.
1.12 INSIDER27
Insiders are individuals that are in some way employed within a company or are involved with a
company in such a way that they have access to information related to the price of shares of that
company. These insiders then use this information to make transactions that make them profits or
avoid losses depending upon the price change of the securities, before the release of the
information publicly. From the Partner and director to any officer or employee of a company,
any person holding some kind of official relationship with a company can become an insider.
Insiders may not directly get involved in the dealings but may inform some outsiders about this
UPSI which would allow them to make similar profits, this allows the insider to avoid any direct
suspicion of themselves. Thus, it becomes very difficult to identify the offenders in Insider
Trading.
24
SEBI (PIT), Reg. 2(1)(n).
25
Rajiv B Gandhi and others v SEBI, Appeal No. 50 of 2007.
26
supra 24.
27
SEBI (PIT), Reg. 2(b).
Page 14 of 104

1.13 INSIDER TRADING – WHEN IT IS LEGAL & WHEN NOT?
The first thought that comes to every mind is that Insider Trading is an offence but that is not the
case, Insider Trading’s legality depends upon the nature of the activity that constitutes Insider
Trading and whether compliance has been made with the legal framework. The main difference
between legal and illegal insider trading is whether the insider has violated securities laws or
regulations.
Legal insider trading 28 can be observed when insiders trade securities in the market but follow
the set of laws & regulations set forth that apply to such transactions. These insiders must report
their trades to the SEBI, make necessary disclosures, and must not use non-public information to
make their trades.
One such circumstance is when an insider makes trades in accordance with a trading plan which
has been pre-determined with the Compliance Officer and has been disclosed to the public at
large and approved by the company's CO or BOD. Such plans must be made in good faith, and
the trades must be made in compliance with the plan's terms and conditions. Another
circumstance where insider trading is permitted is when it is conducted by registered market
makers, who are authorized to facilitate trading in certain securities. In such cases, the market
makers are required to oblige strict requirements to ensure that their non - participation in
abusive or manipulative trading practices.
However, these limited circumstances should not be confused with legal insider trading. Rather,
they are exceptions that are designed to facilitate legitimate market activity and maintain market
liquidity. In all other cases, insider trading is illegal and can result in severe legal and
reputational consequences.
It has been argued by promoters who want to make Insider Trading legal that, Insiders profit
from their confidential information due to their skills, but outsiders, who will always act at their
discretion, won't be harmed. This illustrates the idea of "victimless crime." This justification for
insider trading disregards the problem of information use. There is no assurance that even if
everyone is provided with PSI, they would all use it in the same way. Analysis of stock market
28
L.P Anitha, “Critical Analysis on Laws relating to Insider Trading”, Shodganga, Chp. 3, at 137, December 2010,
available at - http://hdl.handle.net/10603/13173.
Page 15 of 104

information is necessary, and different people have different viewpoints and insiders will always
have an advantage over unaware investors.
Illegal insider 29 trading can be observed when insiders trade securities based on UPSI or when
they provide that information to others who then trade on it. This is a violation of securities laws
and is punishable by fines and imprisonment. Insider trading can also be illegal if it violates the
company's insider trading policies and codes of conduct 30. The securities market needs to have
advanced information processing capabilities to operate effectively and efficiently so that
investors must have the chance to transact fairly.
Everyone agrees that accurate pricing of securities benefits both businesses and society as a
whole. The market would determine the security's ‘proper’ price if all relevant facts had been
made available to the public. An accurate valuation of its securities, which results in less investor
uncertainty and better management effectiveness monitoring, also lowers the level of corruption.
Uncertainty is greatly aided by people who are directly connected to the operations of the
companies.
In cases where insider trading is legal, it can still be considered unethical if the insider uses their
access to information for personal gain and mere compliance with the regulatory framework may
not be enough31. This would happen in cases where the trading is made at the expense that other
shareholders and the company have suffered due to such trades.
29
Tibor R. Machan, “The case for the morality of insider trading”, Insider Trading: Regulatory perspectives, ICFAI
university press, 2007.
30
Vincent Barry, “Moral Issues in Business”, Wadsworth Publishing Company, pg 242, 1983.
31
Ashish Kumar Sana, “Insider trading in company securities: a comprehensive study with special reference to
Indian practices”, Chp. 2, pg 38-40, Calcutta University, 2009.
Page 16 of 104

1.14 WHY IS INSIDER TRADING CONSIDERED UNETHICAL?
Insider Trading is considered immoral or unethical because it entails taking advantage of

confidential information (UPSI) not available in the public domain and not accessible to the
general public. This can create an unjust benefit32 for individuals who have access to such
information, as they can make investment decisions based on such UPSI. Insider trading can also
undermine the reliability of securities markets and damage the confidence of the public in the
fairness of the system. Additionally, it can lead to losses suffered by other investors who do not
have the means to gain such UPSI and may make decisions based on incomplete or misleading
information. Therefore, insider trading is generally considered unethical and is prohibited by
laws and regulations in most countries.
The offence of Insider trading is considered an unethical financial crime for several reasons33.
It creates a position wherein an unfair advantage is with those who have access to UPSI,
allowing them to turn profits at the expense of other investors who do not have the same UPSI.
This undermines the integrity of financial markets, which are supposed to operate based on just
and equivalent rights to make use of the information for all participants.
Second, it breaches a fiduciary obligation imposed upon insiders towards the company &
investors. Insiders are typically privy to sensitive information and are obligated to operate for the
preeminent benefit of the corporation and its shareholders, avoiding the opportunity to use such
UPSI for personal gain.
Third, it weakens public trust in the evenhandedness and transparency of financial markets by
creating an impression that some participants have an unfair advantage over others and that the
markets are not operating on a level playing field.
For these reasons34, insider trading is widely considered to be unethical and can result in
significant legal and reputational consequences for those who engage in it.
32
Robert W. McGhee & Walter E. Block, “An ethical look at insider trading”, Insider Trading: Regulatory
perspectives, ICFAI university press, 2007.
33
Jennifer Moore, “What Is Really Unethical about Insider Trading?”, Springer Publications, Journal of Business
Ethics , Mar., 1990, Vol. 9, No. 3 (Mar., 1990), pp. 171-182, available at - https://www.jstor.org/stable/25072022.
Page 17 of 104

The rationale to prevent acts of such financial misconduct and the need to regulate has been
explained by the Attorney General as, "the obvious need and understandable concern.... about
the damage to public confidence which insider dealing is likely to cause and the clear intention
to prevent, so far as possible, what amounts to cheating when those with inside knowledge use
that knowledge to make a profit in their dealings with others.”35
Thus, Insider Trading is seen as a breach of fiduciary duty owed by the insider towards the
Company as well as the common investors who are unaware of the sensitive information which
has the potential to affect the price of securities of the company. This is the reason it is
considered unethical and invites a penalty of both fine and imprisonment. It is regarded as a
serious financial offence and hence it invited both fines and imprisonment to indicate any act of
Insider Trading would not be taken lightly by the Courts.
34
Nishith M. Desai & Krishna A. Allavaru, “Insider Trading: a comparative study”, Paper 11, available at -
http://www.mindspring.com/~nishith.
35
Attorney General’s Reference, No.1 of 1988 (1988) BCC 765.
Page 18 of 104

1.15 EFFICACY OF CIVIL VERSUS CRIMINAL PROHIBITION
The efficacy of civil liability against criminal liability to prevent offences has been a much-
debated topic36, while some hold the efficacy of criminal law for its influential deterrence others
doubt its suitability and are in favor of civil law as the requirement of evidence to prove an
offence is significantly less than the requirements in criminal law 37. While civil liability may be
easier to prove38 but the retribution for the civil offence may be not enough to strike fear in the
minds of potential insiders as opposed to the punishment of imprisonment that is imposed under
criminal law39.
The supporters of criminal action believe that an act of insider trading is more than a civil
offence and affects the public (investors) at large and accordingly, criminal law should be
imposed. Another reason is that fear of imprisonment might stop some insiders from engaging in
such activities, as criminal sanctions are a greater form of penalizing someone than civil
sanctions in addition to the stigma 40 attached to the criminal sanctions. This would create an
image in the minds of potential offenders that insider trading is taken seriously by the
government.
Further, it is believed offence of insider trading invites a social responsibility to prosecute due to
the number of victims it creates. The conviction behind a greater form of punishment has many
logical reasons supporting it; firstly, the potential harm to the reputation/ future opportunities of
the insiders who are usually at a high and established position in the society, the second is an
example would created in the minds of potential offenders with every successful conviction.
The current punishment for Insider Trading prescribed by the SEBI Act reflects both the civil
and criminal efficacies as this offence invites both heavy fines and imprisonment. Due to the
severity of the offence, any accusation by SEBI needs to be proven beyond doubt in the Court of
Law.
36
Roopanshi Sachar, “Discipline the insider in the capital market: Emerging challenges and way forward”,
University School of Law and legal studies Guru Gobind Singh Indraprastha University, 2018.
37
Bart Frijins & Aaron Gilbert, “Do criminal sanctions deter insider trading?”, 48 The Financial Review 205,
2013.
38
Nahar Mahala & Adi Talati, “Law Practice and Procedure on Insider Trading and Unfair Trade Practices”, 2
Commercial Law Publishers, Delhi, 2004.
39
Nidhi Tandon, “Insider Trading – is it an absolute liability offence?”, 59(2), Corporate Law Adviser, 178, 2004.
40
Smita Singh & Shibhani Saxena, “Judicial Effectiveness of criminal sanctions for Insider Trading and role played
by the intent”, 1 Company Law Journal 96, 2014.
Page 19 of 104

_________________________________________________
CHAPTER II
CONCEPT, HISTORY & EVOLUTION OF INSIDER TRADING IN INDIA
_________________________________________________
The chapter talks about the evolution of the Insider Trading legal regime along with all the
Committees that were set up to analyze and improve the securities market which lead to the
enactment of a legal framework to curb the offences of Insider Trading.
Insider Trading refers to transacting or dealing with a company’s securities based upon some
form of confidential data that is not accessible to the public, intending to make profits or avoid
losses. It is a contravention of the obligations of insiders who is usually an employee/ officer of
the company and they have a fiduciary duty to take actions that reflect the best interest of the
investors. It is not only an economic crime but also a social one as a lot of investing is done by
common folks in the hope of getting good returns on their investment and would like to be
afforded a fair opportunity to make such profits in a company.
The first organized security framework41 is said to be established in Bombay in the year 1875
and is considered to be one of the oldest 42 stock exchanges established in Asia 43. It was shortly
followed by the creation of the Ahmadabad Stock Exchange44 in 1894 and the Kolkata Stock
Exchange45 in 1904. Currently, there are seven46 recognized stock exchanges in India, with the
two prominent stock exchanges that are recognized being the Bombay Stock Exchange47 (BSE)
41
supra 28, at 137.
42
Smriti Chand, “History of Stock Exchange in India”, available at https://www.yourarticlelibrary.com/stock-
exchange/history-of-stock-exchange-in-india/23488.
43
Jitendra Mhakud and L.M.Bhole, “Financial Institutions and Markets: Structure, Growth and Innovations”, 718
(5th Ed.2009).
44
Shradha Rajgiri, “An Analysis of Insider Trading in India”, Pramana Research Journal Volume 9, Issue 3, at 2,
ISSN No - 2249-2976, 2019, available at https://www.pramanaresearch.org/gallery/prj-p565.pdf.
45
ibid.
46
List of Stock Exchanges, SEBI website, available at https://www.sebi.gov.in/stock-exchanges.html.
47
ibid.
Page 20 of 104

& National Stock Exchange48 (NSE) and they possess a mandate to have nation-wise
mercantilism49.
The concept, history & evolution of the concept of Insider Trading and the laws enacted to curb
it, is essential to understand how effective the legal framework to prevent the commission of an
offence of Insider Trading is in reality. The identification of loopholes in the legal regime would
help in better determining legal provisions that are more effective in halting the commission of
this offence. Whenever we discuss the present circumstances of any activity, it is essential to
understand its origin and evolution to be better informed about the activity50.
Insider Trading is traceable as long as back to the origin of the securities market, having plagued
the securities market for decades and it does not only have financial consequences but also social
ones. It is a misdemeanor against the morality of conducting business healthily and as of now the
laws that have been implemented are struggling to detect the evolved form of Insider Trading. It
is considered to be an illegal activity throughout the corporate sector, hence the government has
been in constant deliberation51 on how to improve the regulatory mechanism of the security
market and so throughout the last century, many committees were set up from time to time to
tackle this issue and curb Insider Trading. These Committees through their reports have made
various recommendations to the government on how to improve the existing structure which has
been incorporated by the government in the form of legislation.
2.1 HOW DID IT START?
In India, the most number of the dealings made in securities firstly that were recorded could be
traced to the transactions of East India Company’s loan securities during the first half of the
1800s. During the 1830s Banks52 like Chartered Bank, Oriental Bank, etc, were established that
had shares of their own. Over the next decade, six stock exchanges recognized by the banks were
48
ibid.
49
ibid.
50
Stephen M. Bainbridge, “The Law and Economics of Insider Trading: A Comprehensive Primer”, 2015, available
at http://pages.stern.nyu.edu/~jhasbrou/Teaching/POST 2015 Fall/Materials/SSRN-id261277.pdf.
51
supra 11, pg 2-16.
52
Anand Thapai, “History & Evolution of Stock Exchanges in India”, Academia, at 12-14, available at - (PDF)
Chapter II History & Evolution of Stock Exchanges in India | Anand Thapai - Academia.edu.
Page 21 of 104

functioning in Mumbai. The BSE formally known as the Association of Bombay got set up in
187553 and eventually, this became the first official stock exchange of India 54.
The then President of BSE in his speech55 in 1947 shed some light on the initial incidents of
Insider Trading in the 1940s wherein the companies were not publicly announcing their
dividends and bonus shares which led to a lot of loss for the general public as they invested in
such companies and without any proper awareness about the matter and the lack of proper
authority to regulate the market, they were helpless to get relief for such grievances. Many
insiders took benefit of the unsupervised market and avoided any losses they had and made extra
profits on top of that56.
A few reported incidents of Insider Trading came up in public after the independence; they are
the case of Garware Nyon57, the case of Great Eastern Shipping Company58 , and the instance of
Hindustan Motors Company59. All of these instances had similar features of alleged transaction
of shares by company insiders based upon UPSI which lead to manipulation of the price of
shares. Due to the absence of any regulatory body that could investigate such matters, no action
was taken to verify the accusations in these matters.
2.2 Bombay Securities Contract Act 192560
The Bombay Securities Contract Act was the first legislation that was passed in India in 1925 to
deal with matters allied with Stock Exchange 61. Before this legislation, the securities market was
not regulated and was unsupervised. The main purpose of the Act was to regulate the contracts of
purchase and sale of securities in Bombay. It established a regime wherein there was a pre-
requirement of taking the Governor in Council Body’s approval before implementation of any
53
BSE – History & Milestones, available at - History and Milestones (bseindia.com).
54
supra 42.
55
supra 42.
56
supra 28.
57
Editorial, Insider Trading, Fortune India, Jan 12, 1986.
58
ibid.
59
ibid.
60
Bombay Securities Act 1925, Bombay Act No VIII of 1925, available at - bombayact_p.pdf (sebi.gov.in).
61
“A Historical Perspective of the Securities Market Reforms”, SEBI, available at - SEBI | A Historical Perspective
of the Securities Market Reforms.
Page 22 of 104

rules62. However, it failed to regulate many stock exchanges that were unrecognized, and hence a
large loss was caused to the investors. In response to this Committees was set up to deal with the
shortcoming of the legislation.
2.3 Morrison Committee 193663
This Committee was the first one to be set up after the passing of the Bombay Securities Act, it
had the task of assessing the inadequacies in the legislation and finding a method to regulate the
securities market in a better way. It was established to make a legal framework to better deal
with the contracts made in the course of transactions in the securities market. Upon the
recommendation of this Committee, the Defence of India Act64 1943 was passed and it included
provisions concerning the issue of capital. As was recommended by the Committee, any issues of
capital would need to be approved by the government before its issue, this recommendation
formed part of the new Defence of India Act65. The recommendation of the Committee also
influenced the establishment of a Controller of Capital Issue which issued securities, their kinds,
their price, etc under the powers bestowed by the Capital Issues Control Act of 194766.
2.4 Defence of India Act 193967
In May 1943, the Defence of India Act was introduced, and for the first time restrictions were
imposed on capital issues68. This was done to have a reserve kept to tackle the costs of war and
for the development of the nation during the time of World War II. This Act brought a provision
that stated that for any capital issue, the prior approval of the Government would be necessary.
62
Prakhar Harit, “From Mutual Association to Demutualisation: A Paradigm Shift in the Ownership and
Governance of Stock Exchanges in India”, ARF India, 2021, available at - E:\GANGA RAM
SHARMA_WORK\ARF\14 (ssrn.com).
63
Report of the Stock Exchange Inquiry Committee, Walter Morrison, 1936, available at -
https://www.sebi.gov.in/sebi_data/commondocs/may-2019/HistoryReport1937_p.pdf.
64
Defence of India Act 1939, Act No XXXV of 1939, available at - A1939-35.pdf (indiacode.nic.in).
65
ibid.
66
The Capital (Control) Issues Act 1947, Act No 29 of 1947, available at - capitalissue_p.pdf (sebi.gov.in).
67
supra 65.
68
The Stock Exchange Bombay, Capital Issues Control, 1, 1973.
Page 23 of 104

During this period, the country witnessed a rise in the amount of establishment of stock
exchanges & participation of common investors in such exchanges. Rule 94-C69 of the Defence
of India Rules, 1939, placed a prohibition on speculative practices in the market.
2.5 Capital Issues Control Act 194770
After India got its independence from the British Rule, the Capital (Issues) Control Act was
passed in 1947 which incorporated the previous provisions within it. The office of Controller of
Capital Issues was created under powers bestowed by the 1947 Act, it is in charge of approving
the issue of securities, their kinds, their value, etc.
The Act aimed to regulate the issuance of securities and the use of wealth in the country. The Act
was implemented as a part of the government's efforts to control inflation and promote economic
development in the post-independence period. Under the Act, the government had the power to
control the issue of securities made by companies and regulate the use of capital in various
sectors of the economy. The Act was in force until 1992 when it was repealed as part of the
economic liberalization policy introduced by the Indian government. The repeal of the Act led to
a significant increase in the number of securities issued by companies and the growth of the
Indian capital market.
The Act did play an imperative part in developing the Indian economy during the early years
after independence. However, it was criticized for limiting the growth of the capital market and
for creating a bureaucratic system that hindered the development of the private sector 71.
2.6 Thomas Committee 1948 72
After the passing of the Capital Issues Control Act, Thomas Committee was constituted to
regulate the stock market activities. It was headed by P.J. Thomas and the report under his
leadership was called ‘Report on Regulation of Stock Market in India’.
69
Rule 94-c, Defence of India Rules, 1939.
70
supra 66.
71
L.M.Bhole, “Financial Institutions and Markets: Structure, Growth and Innovations”, Tata McGraw Hill, 2009,
pg 220.
72
Report on the Regulation of Stock Market in India, P.J Thomas, 1948, available at -
https://www.sebi.gov.in/sebi_data/commondocs/may-2019/HistoryReport1948_p.pdf.
Page 24 of 104

This Committee evaluated practices in other countries like the Securities Exchange Act, 193473
of the USA, and recommended the implementation of a similar model in India by the creation of
the National Investment Commission. In Canada74, prompt and public disclosure of such
transactions was also mandatory by law. On the other hand, in the UK75, the Cohen Committee76
recommended such disclosure be made mandatory after discovering serious flaws in the law at
the time.
The Thomas Committee believed that the Securities Market is a place where no speculations
exist and it serves the purpose for which it is created and should operate in a regulated manner. It
was majorly assigned with the task of creating a fundamental piece of legislation to moderate the
securities market activities and set up a regulatory authority that is competent enough to enforce
the laws and deal with matters allied to the stock market.
The very first recorded instances of Insider Trading (the report did not use the term) were also
reported by the Thomas Committee, it cited reports77 of instances wherein ‘insiders’, like
directors, officers, auditors, etc, owned strategic information about dividends, issue of bonus
shares, etc, of the companies before it was later disclosed to the public. It was alleged in the
report with such knowledge they could speculate profitably in the company’s shares.
2.7 Gorwala Committee 195178
This Committee was the second one to be set up after the passing of the Bombay Securities Act
to assess the shortcomings arising out of the legislation. The committee under the leadership of
Gorwala was also assigned a similar task of regulating the Securities Market and their proposal
to regulate security contracts lead to the creation of SCRA, in 1956 after India’s independence in
1947.
73
Securities Exchange Act, 1934, Pub. L. 73–291.
74
Canadian Securities Laws – Overview, Mondaq, available at - Canadian Securities Laws - Overview
(mondaq.com).
75
UK Financial Services and Markets Act 2000, 2000 c.8.
76
Report of the Cohen Committee on Company Law Amendment, 1945, available at - Report of the Cohen
Committee on Company Law Amendment | Journal of the Institute of Actuaries | Cambridge Core.
77
supra 72, para 63, 64 & 65 of Report.
78
Report for Regulation of Stock Exchanges and Contracts in Securities Market, A.D Gorwala, 1951, available at -
Report of the Committee on Proposed Legislation for the Regulation of Stock Exchanges and Contracts in Securities
| INDIAN CULTURE.
Page 25 of 104

2.8 Bhabha Committee 195279
Bhabha Committee was established in 1952 and Section 30780 and Section 30881 were brought
into the Companies Act, 195682 upon the recommendation of the Committee, which dealt with
the maintenance of the statutory register for disclosure of shareholding of directors and
obligation on the part of directors to disclose their shareholdings. They made note of the
increasing trend in fraudulent dealings made by the directors83 in the shares and hence intended
to impose a duty upon them to reveal all the information about any share or debenture held by
them to the company. Thus to incorporate this, Sections 307 and 308 were included in the CA,
1956.
2.9 Securities Contract (Regulation) Act 195684
The SCRA was created on the report of the Gorwala Committee in 1936 which was set up to find
better mechanisms to regulate the stock exchange market. The SCRA had given power and
authority to the government to tackle the moderator challenges of the security market. It had
regulatory authority over stock exchanges by way of continuous supervision over its functioning;
the contracts that are executed in security-related transactions and the listing of securities on
stock exchanges. However, this act does not deal with matters of Insider Trading.
2.10 Sachhar Committee 1978 85
The Report titled ‘Report of the High Powered Expert Committee on Companies and MRTP Act
1978’ was drafted under the leadership of Justice Rajinder Sachhar. The Sachar Committee was
set up to evaluate sections 307 & 308 of the CA, 1956 Act, which were included on the
recommendation of the Bhabha Committee and Monopolies and Restrictive Trade Practices Act,
196986. It found that both sections were not sufficient enough to curb the offence of Insider
79
Report on Company Law Committee, H.C Bhabha, 1952, available at - http://reports.mca.gov.in/Reports/22-
Bhabha%20committee%20report%20on%20Company%20law%20committee,%201952.pdf.
80
Sec. 307 of CA, 1956.
81
Sec. 308 of CA, 1956.
82
Companies Act, 1956, Act No 1 of 1956.
83
supra 78, pg. 100.
84
Securities Contract Regulation Act 1956, Act No 42 of 1956, available at - contractact.pdf (sebi.gov.in)
85
Report of the High Powered Expert Committee on Companies and MRTP Act 1978, Rajendra Sacchar, 1978,
available at - Report of the High-Powered Expert Committee on Companies and MRTP Acts | INDIAN CULTURE.
86
Monopolies and Restrictive Trade Practices Act 1969, Act No 54 of 1969, available at -
The_Monopolies_and_Restrictive_Trade_Practices_Act_1969.pdf (mca.gov.in)
Page 26 of 104

Trading and emphasized the need for disclosure to be made by the directors and other key
managerial persons about the sale and purchase of shares to the shareholders.
2.11 Patel Committee 198687
The Patel Committee was one of the more significant Committees formed to inspect the stock
exchange framework and make suggestions regarding it. Their Report under the chairmanship of
G. S. Patel was titled ‘Report of High Powered Committee on Stock Exchange Reforms 1986’. It
defined Insider Trading as “trading of shares of a company by the persons who are in the
management of the company or are close to them based on PSI regarding the working of the
company, which they possess but which is not available to others”. They recommended the
treatment of Insider Trading as a cognizable offence under Indian laws and suggested heavy
fines, along with imprisonment after the return of the illegal profit earned.
2.12 Hussain Committee 198988
Another committee, headed by Abid Hussain was set up to inspect the functionality of existing
institutions along with the Indian capital market structure. It observed that strict and appropriate
regulatory measures would help tackle the issues of Insider Trading. It indicated that an act of
Insider Trading should invite both Civil & Criminal liabilities given the nature of the offence.
Under the tenure of this committee, SEBI made the effort to design a legal structure to moderate
the conduct of all active personnel in the Security Market.
2.13 Joint Committee to Enquire into Irregularities in Securities Transactions 199289
In 1992, the Second Joint Parliamentary Committee was formed under the leadership of the then
Union Minister, Ram Niwas Mardha. This JPC was formed in response to the Harshad Mehta
Scandal. In the report, while describing Insider Trading as an unhealthy practice, it was
requested90 by the Committee, the establishment of some legislation to deal with Insider Trading.
Until the year 1992 there were no legal sanctions that existed against the commission of Insider
87
Report of the High Powered Committee on Stock Exchange Reforms 1986, G. S Patel, 1986, available at - Report
of the High Powered Committee on Stock Exchange Reforms | INDIAN CULTURE.
88
Report on Trade Policy Reform, Abid Hussain, 1989, available at - EXECUTIVE SUMMARY (dcmsme.gov.in).
89
Joint Committee to Enquire into Irregularities in Securities and Banking Transactions, Ram Niwas Mardha, 1992,
available at - 10_VIII_30-12-1993_p56_p109_PII.pdf (eparlib.nic.in).
90
supra 89, pg. 167, 208
Page 27 of 104

Trading, the Committee observed, “It was a result of the Joint Parliamentary Committee’s
observations during investigations that SEBI was empowered to take necessary actions” 91. This
statement was in response to the Harshad Mehta scam92 in the same year, thus empowering SEBI
to take necessary actions to curb unfair practices.
2.14 Securities Exchange Board of India Act 199293
In 1987, the ‘Cabinet Committee on Economic Affairs’ accepted preliminary proposed powers
that were to be given to SEBI, and the procedure of instituting SEBI was commenced 94. After
five years, the SEBI Act was passed to establish a Board which would protect investors’ interests
in the market securities and promotes, develops, and moderates the activities in the securities
market. The Act, inter alia, bestows powers upon SEBI, the penalties and adjudication which
SEBI may impose or conduct, and the establishment of the Securities Appellate Tribunal
(SAT)95.
Insider Trading is dealt with by SEBI laws which govern the functioning of stock exchanges in
India and its objectives include no unfair profit being earned by insiders by using UPSI and the
playing field being level for all the players involved. Although the term has not been defined
anywhere in the Act, the Act contains provisions that govern it and punishes it.
Chapter IV96 of the Act defines the powers and functions of the Board through Section 11(2)(g)97
which imposes a duty on the regulatory body to take appropriate actions to prohibit the
commission of Insider Trading and investigate matters where they are suspicious of someone
committed the offence of Insider Trading.
Chapter VA98 titled ‘Prohibition of Manipulative and Deceptive Devices, Insider Trading &
Substantial Acquisition Of Securities Or Control’ specifically talks about the prevention of the
offence of Insider Trading as it places a prohibition on the practice of the same via provisions
91
ibid..
92
Harshad Mehta Scam, CBI website, http://www.cbi.gov.in/fromarchives/harshadmehta_nw/harshadmehta.php.
93
Securities Exchange Board of India 1992, Act No 15 of 1992, available at - Gazette notification of SEBI Act,
1992.PDF_p_p.pdf.
94
SEBI Annual Report, 1988-89, pg 1.
95
Sec 15K of SEBI Act, 1992.
96
Chp IV of SEBI Act, 1992.
97
Sec 11(2)(g) of SEBI Act, 1992.
98
Chp VA of SEBI Act, 1992.
Page 28 of 104

Section 12A(d) 99 & 12A(e)100. The punishment prescribed for the crime was101 similar102 to as
mentioned under the CA, 2013. Section 15G 103 ascribes the penalty for the offence of Insider
Trading, which would be between 10 lkh INR and 25 cr INR, or thrice the profits made, or
whichever is higher.
2.15 SEBI (Insider Trading) Regulation 1992104
SEBI via the powers given under Section 11105 has enacted SEBI (Insider Trading) Regulations
to restrict the commission of Insider Trading. It was essential to establish more broad legislation
which governed the security market and to regulate Insider Trading hence to realize this
objective, based on the recommendations of Committees, SEBI (Insider Trading) Regulation was
passed in 1992 along with its parent Act to better facilitate the functioning of the regulatory body
over the securities market. This Regulation was the first set of legal provisions specifically
targeting the commission of Insider Trading and hence gave powers to the regulatory body to
accordingly deal with such matters to control Insider Trading more effectively and efficiently.
Initially, it lacked proper resources for the realization of the legal framework and effective
penalizing provisions, but through subsequent amendments, this scenario has changed.
In the year 2002, the Regulations were amended 106 to curb the loopholes created by the 1992
Regulations as was observed in the case of Hindustan Levers Ltd. vs. SEBI107. This case is one of
the first landmark judgments related to Insider Trading in India. The aftermath of this case lead
to SEBI specifically providing through an amendment that reports of speculative nature would
not be, whether it is in printed form or e-form, would not be considered as a publication
furnishing PSI.
Moreover, the 2002 amendment to regulation brought the definition of the term ‘UPSI’ into the
framework and mandated a compulsion on companies to frame a code of conduct to prevent any
99
Sec 12A(d) of SEBI Act, 1992.
100
Sec 12A(e) of SEBI Act, 1992.
101
Sec 195 repealed through 2017 Companies Amendment Act.
102
Sec 195(2) of CA, 2013.
103
Sec 15G of SEBI Act, 1992.
104
SEBI(Insider Trading) Regulation 1992, available at - SEBI | SEBI (Prohibition of Insider Trading) Regulations
1992.
105
Sec 11 of SEBI Act, 1992.
106
SEBI (PI Regulations, Amendment in 2002, available at - act08amend1_p.pdf (sebi.gov.in).
107
Hindustan Levers Ltd. vs. SEBI, (1998) 18 SCL 311 MOF.
Page 29 of 104

acts of Insider Trading. The previous title was changed by adding the words ‘Prohibition of’108,
hence it became SEBI (Prohibition of Insider Trading) Regulation thereafter. An amendment was
also made to the SEBI act in the same year, and Section 12A109 was brought in, clause (g) of the
Section places a prohibition on any person whether directly or indirectly engaging in Insider
Trading.
There were also amendments in the years 2003110, 2007111, 2008112 , and 2011113, which focused
on imposing a duty upon the directors and other important officers of companies that are listed
on the stock exchange and also those holding more than 5% of company shares to disclose such
information. These preventive steps have helped in tackling the issue of Insider Trading, and a
compulsion has also been placed upon stakeholders of the company to report their holdings and
sale-purchase of such holdings to SEBI.
2.16 Birla Committee 1999114
The Committee headed by Kumar Magalam Birla reported the significance of the need for good
governance in the Securities Market and discussed the prohibition of Insider Trading for good
governance. It also emphasized the need to enforce the already existing regulations relating to
Insider Trading to create an environment of good global governance. The committee reported
that there is a need for the creation of a Code to impose corporate best practices and implement
such safeguards against any misconduct, within the company structure to tackle activities related
to insider trading.
108
Reg 1 of 2002 Amendment to PIT Regulations.
109
2002 Amendment introduced Sec 12A(g) in the SEBI Act, 1992.
110
SEBI (PIT) Regulations, amendment in 2003, available at - inside_p.pdf (sebi.gov.in).
111
SEBI (PIT) Regulations, amendment in 2007, available at - manne_p.pdf (sebi.gov.in).
112
SEBI (PIT) Regulations, amendment in 2008, available at - Microsoft Word - prohibition.doc (sebi.gov.in).
113
SEBI (PIT) Regulations, amendment in 2011, available at - Microsoft Word - Amendment_PIT_final[1].doc
(sebi.gov.in)
114
Report of the Committee Appointed by the SEBI on Corporate Governance, Kumar Birla, 1999, available at -
Winnovative HTML to PDF Converter for .NET - www.winnovative-software.com (sebi.gov.in).
Page 30 of 104

2.17 Sodhi Committee 2013115
SEBI constituted a Committee presided by the Retired Chief Justice of the High Court of
Karnataka, N.K Sodhi, to review the Regulations made on Insider Trading. It submitted its
findings after analyzing the SEBI (PIT) Regulations of 1992, and recommended changes to the
current legal setup in a way to better enforce the laws, confirming the insider trading norms with
those that have been internationally setup and bringing clarity and precision to the definitions
and concepts related to Insider Trading. The committee suggested a principle-based rules and
regulation approach for strengthening the role of SEBI as a market regulator.
2.18 Companies Act 2013116
Section 195117 of the Companies Act of 2013 placed a prohibition on any person including the
director and managerial personnel entering into insider trading.
Insider Trading was defined under sub-clause (1)(a) as -
“an act of subscribing, buying, selling, dealing or agreeing to subscribe, buy, sell or deal in any
securities by any director or key managerial personnel or any other officer of a company either
as principal or agent if such director or key managerial personnel or any other officer of the
company is reasonably expected to have access to any non-public price sensitive information in
respect of securities of company; or an act of counselling about procuring or communicating
directly or indirectly any nonpublic price-sensitive information to any person”
It also contained the definition of PSI and defined it as “any information which relates, directly
or indirectly, to a company and which if published is likely to materially affect the price of
securities of the company”. The sub-clause (2)118, prescribed penal clauses for the commission of
Insider Trading as imprisonment for a duration of up to 5 years and a fine between 5 lkh and 25
cr INR, or thrice the profit earned from the commission of the offence, whatsoever may be
higher, or with both fine and imprisonment.
115
Committee to review the SEBI (PIT) Regulations, 1992, N.K Sodhi, 2013, available at - 1386758945803.pdf
(sebi.gov.in).
116
Companies Act 2013, Act No 86 of 2013, available at - CompaniesAct2013.pdf (mca.gov.in).
117
Sec 195 of CA, 2013.
118
supra 102.
Page 31 of 104

Further 458119 provided the Central Government the power to delegate its authority or any
functions, to SEBI to enforce provisions under section 195 for matters relating to insider trading.
In 2017, through an Amendment Act, the above-mentioned sections were repealed from the
Companies Act by Section 65120 of the Companies Amendment Act, 2017121. It was felt by the
Legislature that Insider Trading falls within the purview of SEBI and hence the SEBI (PIT)
Regulations are better suited to address the issue of Insider Trading.
2.19 Prohibition of Insider Trading Regulation 2015122
In 2015, SEBI repealed the previous regulations of 1992 and brought a new amendment to the
Insider Trading Regulation by bringing clarity to the various related concepts of Insider Trading
as was suggested by the committee headed by N. K Sodhi. It has clarified how who would
qualify to be a ‘connected person’ and also what is ‘Unpublished Public Sensitive Information’.
It has created restrictions to better regulate and stop Insider Trading activities. According to the
2015 Regulations, Insiders who are in possession can make pre-scheduled transactions but have
to disclose publically such transactions 6 months before concluding the trade. Any individual(s)
who acts as a Promoter/ Director has to reveal his holdings to the relevant stock exchange within
seven days of appointment. Moreover, every promoter, director, or employee of a listed entity is
under a mandate to reveal the number of shares of derivatives that have been bought or sold by
them having a value of 10 lakh rupees or more, within 3 months of such transaction, and to the
stock exchange within two days.
Regulation 3123 of the PIT Regulations prohibits any insider indulging in Insider Trading either
by themselves or someone on their behalf, while Regulation 3A 124 prohibits the companies from
indulging in similar activities. Also, a CoC has to be drafted to ensure minimum standards are
followed by people involved in trading to moderate, supervise, and report any activity in the
market that is done by insiders. SEBI has been given the authority to investigate any claim of
Insider Trading accusation made by any investor, intermediary, or any other relevant individual.
119
Sec 458 of CA, 2013.
120
Sec 65, 2017 Companies Amendment Act, 2017.
121
Companies Amendment Act, 2017, available at - THE-COMPANIES-AMENDMENT-ACT-2017.pdf (nfcg.in).
122
SEBI (PIT) Regulations 2015, available at - https://www.sebi.gov.in/sebi_data/attachdocs/1421319519608.pdf.
123
Reg 3 of PIT Regulations, 2015.
124
Reg 3A of PIT Regulations, 2015.
Page 32 of 104

In brief, SEBI (PIT) Regulations, have created restrictions on Insider(s) from trading securities in
a listed company either by himself or by someone on his behalf by utilization of UPSI. However,
the scope of these regulations is not restricted to the same but it also applies to communication,
solicitation, and counseling of the UPSI. Furthermore, it aims at improving transparency in the
security market and creates standards to maintain good governance of the market.
2.20 Viswanathan Committee 2017125
Viswanathan Committee had the task of reviewing observation, examination, and execution
procedures that were in place to boost market reliability and investors’ protection from any
financial transgression. The Report made the recommendation that PIT Regulations, 2015 should
allow the BOD of listed companies to frame a policy underlining legitimate purposes only for
which communication of UPSI would be considered. The 2018 and 2019 Amendments to PIT
Regulations contain the changes recommended by the Committee. Additionally, sharing of UPSI
for corporate purposes, given this is not done to avoid the measures under PIT Regulations is
permitted.
2.21 Prohibition of Insider Trading Regulation (Amendments) 2018 - 2022
Several amendments have been made to PIT 2015 Regulations in the year 2018 126, 2019127,
2020128, 2021129 , and 2022130. The recent major amendments131 include the creation of a
structural database by all companies containing details of shareholders. The report of any
violation of the CoC is to be provided to relevant Stock Exchanges, earlier it was to be reported
to SEBI but that condition has been removed. The amendments have also formed new
opportunities for SEBI to recognize a new class of transactions that would act as an exception to
125
Committee on Fair Market Conduct, T.K Viswanthan, 2017, available at - https://www.sebi.gov.in/media/press-
releases/aug-2017/sebi-constitutes-committee-on-fair-market-conduct-_35497.html.
126
SEBI (PIT) Regulations, amendment in 2018, available at - SEBI | Securities and Exchange Board of India
(Prohibition of Insider Trading) (Amendment) Regulations, 2018 – Dated December 31, 2018.
127
(Prohibition of Insider Trading) (Third Amendment) Regulations, 2019.
128
(Prohibition of Insider Trading) (Second Amendment) Regulations, 2020.
129
(Prohibition of Insider Trading) (Second Amendment) Regulations, 2021.
130
(Prohibition of Insider Trading) Regulations, 2015.
131
Tanya Nayyar &Anushka Shah, Recent Amendments to the Insider Trading Regime, India Corporate Blog, CAM,
Recent Amendments to the Insider Trading Regime | India Corporate Law (cyrilamarchandblogs.com).
Page 33 of 104

restrictions under the trading window. Changes have been also brought to the definition of
insiders, UPSI, generally available information, etc, and Chapter II A132 has been introduced
which deals with insider trading in mutual funds while Chapter III A has been introduced under
the 2022 Amendment.
2.22 FINAL REMARKS
For any event to be understood in its absolution and have a holistic understanding, it is essential
to understand its origin and connection to past and present developments to predict its pathway.
In corporate worlds all around the globe, Insider Trading is viewed as a big offence against
business ethics and a destroyer of public confidence in the security market. The legislation has
been constantly amended to be one step ahead of the issue and curb Insider Trading, and various
committees have been set up to understand how to tackle and regulate this issue.
Regulators all over the world are in a constant fight to stop the commission of Insider Trading in
this information-oriented globalized world, the main objective broadly may be stated as seeking
methods to limit the discrepancy in the information, non-transparency in the transaction of
securities and wearing down of assurance of investors in the security market 133.
SEBI has been making constant innovative moves to strengthen its anti-insider trading laws, by
making stricter frameworks for regulating the security market as well as imposing duties on
companies and various officers of the company to come forward with all the necessary details to
curb the practice.
The study of the evolution of the framework highlights the necessary implications for the
regulator as it affects the economic and social sphere of the societal fabric. To be able to use the
powers bestowed more intelligently, SEBI needs to put the market in order, bring
professionalism to its operation, and strengthen and educate the manpower to more effectively
investigate the matters.
132
Chp IIA of PIT Regulations, 2015.
133
K. Jeremy Ko, “Economics Note: Investor Confidence, Division of Economic and Risk Analysis”, available at -
investor_confidence_oct2017.pdf (sec.gov).
Page 34 of 104

_________________________________________________
CHAPTER III
LEGAL FRAMEWORK FOR INSIDER TRADING IN INDIA
_______________________________________________
This Chapter will talk in detail about the Legislations including both Acts and Regulations that
apply to the act of Insider Trading. A few cases have also been provided to better understand the
interpretation of provisions.
Any legal framework refers to the system of laws, rules, and regulations that govern a particular
area or field of activity. It provides a structured approach to organizing and enforcing legal
norms and standards, which helps to promote consistency, fairness, and justice in the application
of the law. It typically includes various components such as laws, regulations, policies, and
procedures that are designed to achieve specific objectives or outcomes. It provides a structured
approach to managing legal risks and helps to ensure that legal requirements are met consistently
and transparently. Studying the legal framework for insider trading is important for several
reasons:
Compliance: In any other industry where insider trading is a concern, understanding the legal
framework can help in ensuring that compliance with the law is being made to avoid any legal or
ethical issues.
Accountability: The legal framework provides a basis for holding individuals and organizations
accountable for insider trading. By understanding the legal framework, we can better understand
the consequences of insider trading and the importance of complying with the law.
Protection of the market: Insider trading can distort the market and erode public trust in the
financial system. The legal framework for insider trading helps protect the integrity of the market
by ensuring that everyone has access to the same information and opportunities.
Thus, studying the legal framework for insider trading is important for ensuring compliance,
preventing its occurrence, promoting accountability, and protecting the market.
Page 35 of 104

3.1 COMPANIES ACT 2013134
3.1.1 DEFINITION OF INSIDER TRADING & PUBLIC SENSITIVE INFORMATION,

PUNISHMENT FOR INSIDER TRADING
Section 195135 - Prohibition on insider trading
Section – 195 of the CA, 2013 defined what act would amount to ‘Insider Trading’ and what
information would be considered as ‘Public Sensitive Information’ along with also prescribing
the punishment for an act of Insider Trading, with the act being punished with both fine and
imprisonment. The Section prohibited committing Insider Trading and prescribed punishment for
it.
In 2017, through an Amendment Act, this Section was repealed from the Act by Section 65136 of
the Companies Amendment Act, 2017137, but still definition and punishment laid down in the
now repealed Section are of use in present times. It was felt by the Legislature that Insider
Trading falls within the purview of SEBI and hence the SEBI (PIT) Regulations are better suited
to address the issue of Insider Trading.
This Section put a prohibition by stating, “no person including any director or key managerial
personnel of a company shall enter into insider trading”, i.e. any person who is an ‘insider’ or
holds a position in the company is thus prohibited from engaging in Insider Trading.
The Section defined Insider Trading as -
“(i) an act of subscribing, buying, selling, dealing or agreeing to subscribe, buy, sell or deal in
any securities by any director or key managerial personnel or any other officer of a company
either as principal or agent if such director or key managerial personnel or any other officer of
the company is reasonably expected to have access to any non-public price sensitive information
in respect of securities of company; or (ii) an act of counselling about procuring or
communicating directly or indirectly any nonpublic price-sensitive information to any person”138
134
supra 116.
135
supra 117.
136
supra 120.
137
supra 121.
138
supra 117.
Page 36 of 104

In simple terms, Insider trading refers to the trading of securities based on UPSI. It occurs when
someone who has access to confidential or proprietary information about a company or its
securities, such as an executive or employee, uses that information to make trades on the
company's stock or other securities before the information is made public.
The Section defined Public Sensitive Information as -
“any information which relates, directly or indirectly, to a company and which if published is
likely to materially affect the price of securities of the company.”139
This information has two main components i.e. it is not in the public domain which means the
common investors do not have the means to gain such knowledge and secondly, it has the power
to affect the prices of shares.
Lastly, the Section prescribed punishment for the offence as, any violation of provisions under
this Section can invite imprisonment upto 5 years or with a fine ranging from 5 lkh INR to 25 cr
INR, or thrice the amount of profits made, whichever is higher, or both may be applicable. 140
3.1.2 POWERS OF CENTRAL GOVERNMENT FOR CURBING INSIDER TRADING
Section 458141 - Delegation by Central Government
The Section also got amended under the same Amendment Act of 2017 142, and proviso 1 which
read as “powers to enforce the provisions contained in section 194 and section 195 relating to
forward dealing and insider trading shall be delegated to SEBI for listed companies or the
companies which intend to get their securities listed and in such case, any officer authorized by
the SEBI shall have the power to file a complaint in the court of competent jurisdiction”143, the
section instilled all the powers w.r.t the repealed section over to SEBI as such concerns are the
subject-matter of interest of SEBI and they are better suited to deal with them.
139
Sec 195(1), CA, 2013.
140
Sec 195(2), CA, 2013.
141
supra 119.
142
supra 137.
143
ibid, Proviso 1
Page 37 of 104

This was done to avoid conflict laws between the SEBI Act 1992 and CA 2013 as well as the
fact that SEBI has more authority over the regulation of the security market and they should be
making laws regarding the same. As the heading suggests, this Section gave authority to the
Central Government to pass on its powers with applicable limitations over to such authority they
deem fit to exercise such power.
Section 11144, Section 12A145, and Section 15 G146 are the corresponding Sections of the SEBI
Act that deal with Insider Trading in the present context along with the PIT Regulations to
further realize the objectives of prohibiting Insider Trading in India.
144
supra 105.
145
Sec 12A of SEBI Act, 1992.
146
supra 103.
Page 38 of 104

3.2 SECURITIES EXCHANGE BOARD OF INDIA ACT 1992147
The preamble of the SEBI Act, 1992 outlines the main objectives & purpose of the Act. The
preamble states that the Act provides for the institution of the Board to be known as the
Securities and Exchange Board of India to guard investors’ interest in the securities market and
to support the growth of & moderate the securities market. The preamble highlights the
following objectives:
Protect interests of investors in securities: The Act seeks to ensure that investors are protected
from financial misconduct and are provided with accurate and timely information about the
activities in the market.
Promote development of securities market: The Act aims to encourage the development of the
securities market, by creating a fair and transparent regulatory framework that encourages
investment and protects investors.
Regulate securities market: The Act has given SEBI the necessary powers and authority to
regulate the securities market, prevent malpractices, and ensure that the market operates
transparently and efficiently.
Overall, the preamble of the SEBI Act reflects the government's intention to establish a robust
moderator framework for the securities market that protects investors' interests, promotes
development, and ensures fair and transparent practices.
3.2.1 FUNCTIONS OF THE BOARD
Under Section 11148 the SEBI has been authorized with the power to make such measures to
operate to fulfill the three basic objectives for which SEBI has been set up by the Legislature,
which are the protection of investors’ interest, encouraging the growth of securities market &
moderate the securities market. There is also a legal duty that has been cast upon SEBI with the
broad functions provided to the Board under this provision. In the case of Shailesh M. Ved v.
147
supra 6.
148
supra 105.
Page 39 of 104

Adjudicating Officer, SEBI149, the SAT observed that “Section 11 of the Act enjoins a duty on the
Board to protect the integrity of the securities market.”150
In another case,151 the SC observed that the “Board exercises its legislative power by making
regulations, executive power by administering regulations framed by it and taking action against
any entity violating these regulations and judicial power by adjudicating disputes in
implementation thereof. The only check upon exercise of such wide ranging power is that it must
comply with Constitution and Act. “152
3.2.2 PROHIBITION OF INSIDER TRADING, FRAUDULENT ACTIVITIES & OTHER

UNFAIR PRACTICES
The sub–clause (g) of clause (2)153 empowers SEBI to make regulations to “prohibit insider
trading in securities”, while sub-clause (e)154 talks about the creation of measures155 to stop
fraudulent and unfair trade practices in the securities market. The SEBI (PIT) Regulations156 and
SEBI (FUTP)157 Regulations have been framed to further aid the Board in the prohibition of
Insider Trading. Additionally, SEBI has powers to call for information158, conduct investigations/
inspections/ inquiries159 , and research160 in furtherance of the same goals.
3.2.3 MEASURES TO TACKLE INSIDER TRADING & OTHER UNFAIR PRACTICES
Clause (2A) 161 gives extra powers to SEBI to “take measures to undertake inspection of any
book or register, or other document or record of any listed public company or a public company
which intends to get its securities listed on any recognized stock exchange where the Board has
reasonable grounds to believe that such company has been indulging in insider trading or
149
Shailesh M. Ved v. Adjudicating Officer, SEBI, AO Order – MC/AO- 11/2010, available at - Microsoft Word -
Adjudicaton%20Order%20Shailesh%20Ved%20in%20the%20matter%2… (sebi.gov.in).
150
ibid.
151
Clairiant International Ltd and Anr v SEBI, AIR 2004 SC 4236.
152
ibid, para 79.
153
supra 97.
154
Sec 11(2)(e) of SEBI Act, 1992.
155
Karnavati Fincap Ltd and Alka Spinners Ltd v SEBI, 1996 87 Comp Case 186 (Guj); Anand Rathi v SEBI, 2002,
110 Comp Cas 837 (Bom).
156
SEBI (PIT) Regulations, 2015.
157
SEBI (FUTP) Regulation, 2003.
158
Sec 11(2)(ia)of SEBI Act, 1992 .
159
Sec 11(2)(i) of SEBI Act, 1992 .
160
Sec 11(2)(l) of SEBI Act, 1992 .
161
Sec 11(2A) of SEBI Act, 1992.
Page 40 of 104

fraudulent and unfair trade practices relating to the securities market.” This clause provides
measures that can be undertaken by SEBI to inspect any document company which is on any
recognized stock exchange or intends to take part in it at some point, wherein the Board believes
that the company indulged in Insider Trading. This provision does not purport to limit the ambit
of provisions of sub-section (2) of Section 11162 but merely makes it explicit that in case a public
company, listed or intending to do so, is believed to be indulging in Insider Trading or other
unfair practices then SEBI may take measures for inspection of such entity.
Clause (4) of Section - 11163 bestows upon SEBI the power to issue orders in concern of either
the securities market or the investors in furtherance of an investigation or inquiry. The measures
under this provision include suspension of trade of any security in the stock exchange,
restraining person(s) from dealing in the securities market, etc. These measures can be taken both
at the interim or final stage of the investigation or inquiry, thus enabling the regulatory body to
undertake rapid decisions.
Under part (f) of clause (4) 164, the Board may “direct any intermediary or any person associated
with the securities market in any manner not to dispose of or alienate an asset forming part of
any transaction which is under investigation”, if it is satisfied that a company has engaged in
Insider Trading and have reasonable grounds to believe so. This is a temporary measure made to
protect the subject matter until the final order has been passed after the investigation or inquiry.
Section – 11 B165 of this Chapter talks about the power to issue directions to protect investors’
interest, the Explanation clause attached gives it more dynamism and it states, “that the power to
issue directions under this section shall include the power to direct any person, who made a
profit or averted loss by indulging in any transaction or activity in contravention of the
provisions of this Act or regulations, to disgorge an amount equivalent to the wrongful gain
made or loss averted by such contravention.” This provision was added to add more finesse to
the functionality of the purpose and make it tidier to achieve its objectives.
162
Sec 11(2) of SEBI Act, 1992.
163
164
Sec 11(4)(f) of SEBI Act, 1992.
165
Sec 11B of SEBI Act, 1992.
Page 41 of 104

In Karvy Stock Broking Ltd. v. SEBI166, Court observed Section 11 B to be part of the ‘soul and
heart of the Act’ as the Board performs part of its statutory duty under this provision. In another
case, Bank of Baroda v. SEBI167, this Section was regarded as a ‘functional tool in the hands of
the Board.’
3.2.4 POWER OF INVESTIGATION
Provision 11 C168 provides Board the power to direct any person/authority to examine if the
Board believes on reasonable grounds169 that the concerned transactions made were detrimental
to the investors or the securities market. The power of Investigation and enforcement was
recommended by the Dhanuka Committee Report170 on Securities Laws in the year 1997. Further
under Clause (9)171, a Magistrate may “authorize seizure documents of any listed public company
or a public company which intends to get its securities listed on any recognized stock exchange if
such company indulges in insider trading or market manipulation.” Thus, in cases of Insider
Trading or instances of market manipulation, the Magistrate has extensive powers to seize any
relevant documents to the investigation.
3.2.5 CEASE AND DESIST PROCEEDINGS
Section – 11 D172 empowers the Board to stop or prohibit a person from continuing a particular
course of conduct. This prohibition applies to those who cause a contravention of the Act or its
rules and regulations173. It is prohibitory restraining order and is made only after conducting an
inquiry and being satisfied that a violation has been made or is likely to be made by a person.
Additionally, in cases of cease-desist proceedings against a public listed company, there must
exist reasonable grounds that it is indulged in Insider Trading or market manipulation.
166
Karvy Stock Broking Ltd. v. SEBI, SAT Appeal No. 193 of 2021, available at - SEBI | Confirmatory Order in the
matter of M/s. Karvy Stock Broking Limited <span style='color:#007ffc;'>[SAT Appeal No.:</span> <a
style='color:#007ffc;' href='http://sat.gov.in/english/pdf/E2021_JO2021193_13.PDF' target='_blank'><em class='fa
fa-external-link'></em>193/2021]</a>.
167
Bank of Baroda v. SEBI, Appeal No. 304 of 2020.
168
Sec 11C of SEBI Act, 1992.
169
D Link (India) Ltd v SEBI, Appeal No. 120/2007, SAT Order 2008.
170
Committee Report on Securities Laws, D.R Dhanuka, 1997, available at -
https://www.sebi.gov.in/sebi_data/commondocs/ar97981_h.html ; Indian Securities Law Strategy, Price Waterhouse
LLP, 1997, available at - PNACC015.pdf (usaid.gov).
171
Sec 11C(9) of SEBI Act, 1992.
172
Sec 11D of SEBI Act, 1992.
173
M/S Alfavision Overseas Limited v SEBI, SEBI Order No. MO/7/ID/10/2003
Page 42 of 104

3.2.6 PROHIBITION ON INSIDER TRADING
CHAPTER VA174 is titled ‘Prohibition of Manipulative & Deceptive Devices, Insider Trading &
Substantial Acquisition of Securities or Control’ and deals with the same. Provision 12A175 puts
prohibition on any individual whether directly or indirectly to engage in illegal trade practices.
The sub–clause (d)176 of the provisions puts a prohibition on participation in activities of Insider
Trading whether it may be directly or indirectly, while sub–clause (e)177 puts a restriction on the
dealing of securities while having access to UPSI. This prohibition applies to dealing in
securities whether on one’s behalf or someone else.
In SEBI v Pan Asia Advisors Ltd178, while explaining the scope of Section – 12A, the Court
stated that “the purport of the statutory provision is protection of interests of investors in the
securities and the securities market.”
3.2.7 PENALTY IMPOSED FOR AN OFFENCE OF INSIDER TRADING
Penal provision prescribed for an offence of Insider Trading has been provided under provision
15 G179 which punishes any insider who either by himself or on behalf of another person, trades
in a company listed on the stock exchange on the basis of UPSI, or communicate such UPSI to
any person which would not happen in the ordinary course of business, or counsels/procures for
any other person to trade securities based on UPSI and makes them accountable for Insider
Trading.
It is a serious offence and attracts significant penalties under SEBI regulations. The penal
provision for insider trading includes both monetary and non-monetary penalties. SEBI can
penalize for an amount up to 25 cr INR or thrice the amount of the earnings made, or whichever
is more. Non-monetary penalties can include being barred from the securities market, being
prohibited from holding any office or position in any listed company and being barred from
trading in securities.
174
Chp VA of SEBI Act, 1992.
175
Sec 12A of SEBI Act, 1992.
176
Sec 12A(d) of SEBI Act, 1992.
177
Sec 12A(e) of SEBI Act, 1992.
178
SEBI v Pan Asia Advisors Ltd, 2016, 134 SCL 311.
179
Sec 15G of SEBI Act, 1992.
Page 43 of 104

In addition to these penalties, insider trading also invites provisions of the Indian Penal Code.
The severity of the punishment depends on the nature and degree of the offence committed, and
penalties can vary with each case.
In the case of Ranjana R Kothari v SEBI180, the Court observed that “Insider trading is the
trading of a company’s stock by individuals who have access to non-public information about the
company, An insider or a related party cannot trade on such information obtained during the
performance of the insider's duties as it is a breach of fiduciary relationship. It is indeed, a very
serious wrong doing in regard to the securities market as it gives the insider an undue advantage
in trading which is not available to the other investors, Law insists that insiders should not trade
till non public information comes in the public domain so that there is a level playing field for all
traders/investors in the securities market”.
3.2.8 IMPRISONMENT & PENALTY
This Section imposes a criminal punishment on the person who violates or aids in the violation
of the provisions of this legislation or its rules and regulations. The punishment provided by
provision 24(1)181 includes a sentence for a period of up to a decade, or with a monetary penalty,
which may go up to 25 cr INR or both.
180
Ranjana R Kothari v SEBI, Appeal no. 125/2011.
181
Page 44 of 104

3.3 SECURITIES EXCHANGE BOARD OF INDIA (PROHIBITION ON INSIDER
TRADING) REGULATION 2015 182
The PIT Regulations were introduced by SEBI to prevent insider trading and promote fair and
transparent trading practices in India. The regulations do not have a preamble as such, but the
introduction of the regulations states their objectives and scope. The introduction of the PIT
Regulations states that the regulations are aimed at preventing acts of insider trading and
ensuring an equal opportunity for all investors in the market. The regulations seek to ensure that
insiders do not take advantage of their privileged position to make profits or avoid losses at the
expense of other investors.
PIT Regulations apply to all kinds of securities listed on any recognized stock exchanges and
seek to regulate acts of insider trading done by insiders. Overall, the introduction to the PIT
Regulations aims to provide a broad overview of the objectives and scope of the regulations and
their importance in promoting fair and transparent trading practices. SEBI (PIT) Regulations
were first enacted in 1992 and went through various amendments to keep in touch with the
changing needs of the time.
3.3.1 DEFINITIONS CLAUSES
Regulation – 2 c183 : Compliance Officer
It refers to any officer of a senior stature in the corporation, and this individual will be
responsible for ensuring that the company is meeting various legal and regulatory requirements
of the law and is responsible for monitoring as well as complying with the rules for safeguarding
communication of UPSI under control of Board.
Regulation – 2 d184 : Connected Person
It refers to any individual who was associated with the company in some form whether directly
or not, permanent or not, in any capacity that allows them to access UPSI185.
182
supra 7.
183
Reg 2(c) of PIT Regulations, 2015.
184
Reg 2(d) of PIT Regulations, 2015.
185
Mr Neeraj Jain v SEBI, AO Order No. PB/AO-16/2011.
Page 45 of 104

Regulation – 2 g186 : Insider
An Insider refers to an individual who can be classified as a connected Person or having the
access to UPSI187.
Regulation – 2 l188 : Trading
Any act of “subscribing, buying, selling, dealing, or agreeing to subscribe, buy, sell, deal in any
securities” would be regarded as Trading.
Regulation – 2 n189 : Unpublished Public Sensitive Information
It refers to sensitive information that concerns the functioning or management of a company or

its securities, whether it has the potential to affect it directly or not, is known to very few who
have access to it, and when published publicly has the power to influence the value of the
securities and includes information like – dividends, financial results, change in a key managerial
position or capital structure, etc.
3.3.2 RESTRICTIONS IMPOSED ON INSIDERS
Chapter II190 puts a prohibition on communication/ procurement of UPSI by an insider.
Regulation 3191 states that “no insider shall communicate, procure from or cause the
communication provide, or allow access to UPSI to any person, relating to a company or
securities listed or proposed to be listed, except where such communication is in furtherance of
legitimate purposes”192.
186
Regulation 2g of PIT Regulations, 2015.
187
SEBI v Reliance Industries Ltd, 2004.
188
Reg 2(l) of PIT Regulations, 2015.
189
Reg 2(n) of PIT Regulations, 2015.
190
Chp II of PIT Regulations, 2015.
191
192
Mr. Naval Chaudhary v SEBI, AO Order No. PB/AO-15/2011.
Page 46 of 104

Clause (3)193 of the Regulation provides certain exceptions to this provision and allows the use of
UPSI by insiders when –
(i) It is the duty to propose an open offer to comply with the conditions under the
takeover regulations where the BOD is satisfied that it is to further the corporate
interests of the company to assess a potential investment.
(ii) Such UPSI should be made accessible in public domain at least passing of 2 trading
days before the deal comes into effect.
Clause (4)194 of the Regulation mandates that the parties to the transaction should execute
agreements of confidentiality and non – disclosure and the UPSI so received must be kept
confidential and the party should not trade while in possession of the sensitive information.
3.3.3 TRADING DURING POSSESSION OF UPSI (EXCEPTIONS)
Regulation 4195 puts a prohibition on the Insider to not deal on the stock exchange if in
possession of UPSI of a company that is listed or intends to list on it, the Explanation under this
Regulation provides for a presumption that, such a trade by an Insider would be deemed to be
made under the influence of the UPSI and the burden would be upon him to prove otherwise.
An Explanation Clause was added vide the 2018 Amendment that, “when a person who has
traded in securities has been in possession of USPI, his trades would be presumed to
have been motivated by the knowledge and awareness of such information in his possession”.
The Regulation also provides give recourse to Insider(s) to establish his innocence by
establishing existence of certain circumstances which are –
In case of Individual Insiders:
 Transaction was between Insiders in possession of same UPSI and was an off – market
inter – se transaction between them which did not violate Regulation 3 and was informed
to the company within 2 days of the transaction.
193
Reg 3(3) of PIT Regulations, 2015.
194
195
ibid.
Page 47 of 104

 Transaction was made in the block deal window process by the persons with UPSI
without violating Regulation 3 unless the UPSI was obtained under Regulation 3(3)196.
 Transaction was made to abide by a legal or regulatory compulsion on the parties to
execute a bonafide deal.
 Transaction was made under pre determined price to exercise stock options which were
in conformity with related provisions.
In case of Non -Individual Insiders:
 Transaction was made by a party who was not having access to UPSI and different to
those who had access, when the decision make the trade was made.
 There were sufficient preparations made to guarantee that none of the provisions were
dishonored and the UPSI was inaccessible to the parties who traded.
Insiders would also be exempted if the trade were made in pursuant to a Trading Plan made
under Regulation 5197.
3.3.4 TRADING PLANS
Regulation 5198 defines the prospect of a Trading Plan which may be laid down by an Insider and
subject to approval from the CO and after its disclosure publicly of such plan, trades may be
made according to this Plan. This Provision empowers person(s) who have UPSI and provides
them a way to deal in a manner acceptable under law. Further requirements have been given
under the Regulation which is to be met in order for Insider to be able to deal in securities while
having UPSI.
3.3.5 DISCLOSURES TO BE MADE BY INSIDER FOR TRADING
The intent behind Regulation 6 199 is to prevent abuse of trading in securities by person in
possession of UPSI and hence it imposes a duty on person who has UPSI to disclose the trades
they made in addition to the trades they made on behalf someone while having the special
knowledge.
196
supra 193.
197
198
ibid.
199
Page 48 of 104

3.3.6 DISCLOSURES REQUIRED BY CERTAIN PERSON(S)
Every Person who is appointed at a key managerial position in a company is under statutory duty
on the date of appointment as promoter or within a week of such appointment to unveil their
holdings in the company’s securities. This provision basically allows the listed companies to ask
information of securities holding from person(s) who are going to be allowed knowledge of
UPSI.
3.3.7 CODES OF CONDUCT & FAIR DISCLOSURE
Regulation 8200 contained in the Chapter IV201 of the PIT Regulations puts a statutory duty upon
the BOD of every listed company to create & issue code of practice & procedure for fair
disclosure of UPSI that is to be adhered to by the company in order to conform to conditions in
Schedule A. This condition intends to create a requirement on listed companies to create a
framework that would make sure any event that affects the price of securities should be
disclosed.
Under Regulation 9202, the BOD of listed companies should create a Code of Conduct to
moderate, supervise and report dealings made by designated persons or their relatives. The Code
conforms to compliances under the Regulation and requirements under Schedule B 203 (for Listed
Company) and Schedule C204 (for intermediary) to the Regulations.
Moreover, under clause (2)205 of this Regulation, every person(s) having UPSI during the
ordinary course of business should devise a similar Code meeting the requirements as mentioned
above for trades by designated person and their relatives. This provision applies to person(s)
other than the listed companies and its intermediaries
200
201
Chp IV of PIT Regulations, 2015.
202
203
Schedule B of PIT Regulations, 2015.
204
Schedule C of PIT Regulations, 2015.
205
Page 49 of 104

3.3.8 INSTITUTIONAL MECHANISM TO PREVENT INSIDER TRADING
Under Regulation 9A206 of the PIT Regulations, an adequate and effective mechanism is to be
established by the CEO or MD or such other responsible, to create internal control within the
company to prevent commission of Insider Trading. It includes:
 Every employee with access to UPSI is to be known as a ‘designated person’,

 UPSI is to be recognized & precautions must be made to maintain its confidentiality,
 Restrictions to be made on communication and procurement of UPSI,
 List of all person(s) with UPSI must be created and they must sign NDA.
Clause (5)207 of the Regulation 9A mandates every company that is listed to create a procedure
and policy in case of a leak or potential one of UPSI and act accordingly in case of such an event
and report it to SEBI. Also, there must be whistle blower policy which is for employees who
wish to report a leak of UPSI under Clause (6) 208.
3.3.9 SCHEDULES
Schedules are documents that further the objectives of the Legislation; they are components of
Legislation, acting as Appendix appearing at the end of the Act. The below mentioned Schedules
are part of the PIT Regulations.
SCHEDULE A209 - Principles of Fair Disclosure for purposes of Code of Practices and
Procedures for Fair Disclosure of Unpublished Price Sensitive Information
 The UPSI should be made publically available as soon as the company deems it fit to be
published for public use.
 The UPSI must be made available in a way it is publically available for everyone and no one
is selectively devoid of it.
 The UPSI that is initially disclosed selectively, prompt steps must be taken to disseminate it
in a way it is publically available.
 UPSI must be regulated only on need to know basis.
206
Reg 9A of PIT Regulations, 2015.
207
Reg9A(5) of PIT Regulations, 2015.
208
Reg 9A(6) of PIT Regulations, 2015.
209
Schedule A of PIT Regulations, 2015, pg 43.
Page 50 of 104

SCHEDULE B210 - Minimum Standards for Code of Conduct for Listed Companies to Regulate,
Monitor and Report Trading by Designated Persons
 UPSI must be regulated in on need to know basis except for lawful purposes.
 Designated Persons and their relatives are to be presided over by the internal CoC of
company.
 Trading windows must be used by Designated Person to make trades, if the CO is of the
opinion during the window, they were not in possession of UPSI. Before making such trades,
the person(s) should take prior declaration from the Officer that he is satisfied that they are
not in possession of any UPSI.
 Any violation of Regulations must be reported to SEBI along with the information about the
trade of securities breaching the Regulations.
 The Listed companies must have a process to determine how person(s) are made aware of the
sensitive transactions and they should be made aware of their duties towards maintaining its
confidentiality and liability if it is breached.
Schedule C211 – Minimum Standards for Code of Conduct for Intermediaries and Fiduciaries to
Regulate, Monitor and Report Trading by Designated Persons
 UPSI must be regulated on need to know basis except for lawful purposes.
 Designated Persons and their relatives are to be presided over by the internal CoC of
company.
 Designated Persons may execute trade subject to pre- clearance from Compliance Officer.
 Before making such trades, the person(s) should take prior declaration from the Officer that
he is satisfied that they are not in possession of any UPSI.
 The intermediary or fiduciary are under a mandate to report to SEBI in case of violation.
 The intermediaries and fiduciaries must create a procedure to determine the manner of how
person(s) are made aware of the sensitive transactions and they should be made aware of
their duties towards maintaining its confidentiality and liability if it is breached.
210
supra 203, pg 44.
211
supra 204, pg 50.
Page 51 of 104

_________________________________________________
CHAPTER IV
JUDICIAL PRONOUNCEMENTS RELATED TO INSIDER TRADING
_________________________________________________
This Chapter will talk about the various judicial decisions given by Supreme Court and
Securities Appellate Tribunal which have paved the way for rules regarding Insider Trading. We
will also look into some important foreign cases and their impact on Insider Trading.
One of the most high-profile cases in the world has been the case involving Rajat Gupta212, he
was accused of passing on confidential information to Raj Rajaratnam213, who used the
information to make trades that earned him millions of dollars in profits. Gupta was convicted of
insider trading in the United States in 2012 and sentenced to two years in prison.
Over the years, SEBI has taken a number of measures to prevent insider trading and to punish
those who engage in it. These measures include strengthening the legal framework for insider
trading, enhancing the surveillance and monitoring of trading activities, and imposing heavy
penalties on those found guilty.
In India, there have also been high profile cases like the one filed against Reliance Industries
Limited214 (RIL) and its chairman Mukesh Ambani. In 2017, SEBI fined RIL and Mukesh
Ambani a total of Rs. 447 crore for alleged insider trading in shares of Reliance Petroleum
Limited (RPL) in 2007. SEBI found that RIL had sold shares of RPL based on insider
information, and that Mukesh Ambani was involved in the decision-making process. The case
was significant because it involved a major Indian corporation and one of India's richest men.
Other famous cases include those of Satyam Computer Services215 and Infosys216. In most of
these cases, SEBI has taken strong action against the companies and individuals involved,
imposing heavy fines and banning them from trading in the securities market. SEBI has also
212
SEC v. Rajat Gupta, Civil Action No. 11-CV-7566.
213
SEC v. Raj Rajaratnam, Civil Action No. 11-CV-7566.
214
SEBI v Reliance Industries Limited, Appeal No. 120 of 2017.
215
SEBI v Satyam Computer Services, WTM/GM/EFD/67/2018-19.
216
SEBI v Infosys Limited, WTM/SM/ISD/ISD_ISD/14488/2021-22.
Page 52 of 104

taken action against several other companies and individuals for insider trading in recent years.
For example, in 2018, SEBI punished HDFC Bank217 with a fine of 10 lkh INR for non –
disclosure of insider trading by one of its employees. In 2019, SEBI penalized two individuals,
8.36 cr INR for insider trading in the shares of Mindtree Limited218.
Overall, SEBI's actions against insider trading in India have been seen as positive by market
participants. The regulator has been praised for its efforts to crack down on insider trading and
enforce strict penalties on those found guilty. However, there have also been concerns about the
effectiveness of SEBI's enforcement efforts, particularly in cases where the alleged insider
trading occurred several years ago. Some market participants have called for SEBI to be more
proactive in detecting and preventing insider trading, rather than relying on after-the-fact
enforcement actions.
Studying judicial precedents for insider trading can help in understanding the legal framework
helps us understand the reason behind the legal framework surrounding this crime. It helps us
understand the elements that need to be proven to establish insider trading, and the factors that
judges consider when deciding cases related to this crime. Also, analyzing judicial precedents
related to insider trading can help us in identify gaps in the legal framework and advocate for
changes in the law. Precedents also provide a basis for courts to develop the law in response to
changing circumstances and societal values.
217
SEBI v Ranish Harebhai, Adjudication Order No . Order/BD/VS/2020 - 21/ 8849.
218
SEBI v Mindtree, Adjudication Order No. Order/PM/PA/2021 - 22/14587.
Page 53 of 104

4.1 MAJOR FINDINGS IN THE LANDMARK JUDGMENTS
RAKESH AGARWAL V SEBI219
In this landmark case, SAT emphasized on the need to regulate market to curb unfair practices
and improper use of inside information to guard investors’ interest in the securities market. They
emphasized on need of strong and healthy security market based on quality and integrity to
inspire the investors’ confidence. SAT in the matter, defined the concept of insider trading as,
“inequitable and unfair practices such as insider trading, affect the integrity, fairness and
efficiency of the securities market, and impair the confidence of investors. Insider trading takes
place when insiders or other persons, who by virtue of their position in office or
otherwise, have access UPSI relating to the affairs of a company, and deal in securities of such
company or cause the trading of securities while in possession of such information or
communicate such information to others who use it in connection with the purchase or
sale of securities.”
The Tribunal also declared that the insiders are given access to UPSI for corporate purposes
only, and are expected not to misuse 220 it for gains due to the fiduciary duty that they owe, and
held that, “ insiders are either required to disclose the said UPSI to other transacting parties
or to abstain from acting on the said information/dealing in such securities altogether.
This requirement has come to be known as the ‘disclosure or abstain’ rule.”221 It can be
ascertained that people who trade on the basis of UPSI as opposed to those who have suffered
due to absence of it in public domain stand at complete polar opposite footing. One gains profit
while the other suffers due to the wrongful conduct and breach of fiduciary duty.
DSQ HOLDINGS LTD v SEBI222
In this case, the Tribunal relying upon the ratio decendi in Rakesh Agarwal v SEBI223, that a
corporate insider while in possession of UPSI has to abstain from trading in securities and make
such necessary disclosures as required by law to create investor confidence in the integrity and
219
Rakesh Agarwal v SEBI, SAT Appeal No 33 of 2001, SAT Mumbai.
220
Chiarella v. US, 455 US 222
221
supra 219, pg 25.
222
DSQ Holdings Ltd. v SEBI, 60 SCL 156, 2005, SAT Mumbai.
223
supra 219, pg 23-24.
Page 54 of 104

fairness of the market. It evolved the principle of disclose/ abstain in India and held that, “the
whole philosophy on which the securities regulation are based and have evolved all over the
world, is to ensure availability of common information and fair play to the participants in the
securities markets. Insider trading regulations also emanate from such obligations which
prohibit trading in breach of fiduciary duty or other relationships of trust and confidence, while
in possession of UPSI. This is also with a view to prevent an insider, which includes corporate
insider, also from utilising the position of knowledge and access of information to take unfair
advantage of the uninformed stockholder.”224
SAMEER ARORA V SEBI225
SEBI accused Samir of possession information that the prices of the scrips would go down and
he used this information to sold off his holdings in ACMF & ACM. SAT overruled the charges
of and held that, “it is not possible for us to let mere suspicions, conjectures and hypothesis takes
the place of evidence as described in the Indian Evidence Act.”226Therefore, mere speculations or
theories as to occurring of Insider Trading is not enough to prove an offence as this offence is of
very serious nature. Hence, there is a need to be a separate and independent proof to establish
charge of Insider Trading.
MILAN MAHENDRA SECURITIES PVT. LTD v SEBI227
The SAT refused to believe that violation of Regulation 13(4) 228 and 13(5)229 of PIT Regulations
is merely a technical and venial violation and was a result of inadvertence and held that “the
purpose of these disclosures is to bring about transparency in the transactions and assist the
Regulator to effectively monitor the transactions in the market.”230 They also were of the opinion
that non – disclosure would defeat the purpose of the Act.
224
supra 222, Para 6.4.18.
225
Sameer Arora V SEBI, Appeal no 83 of 2004.
226
Ibid, para 68.
227
Milan Mahendra Securities Pvt. Ltd. v SEBI, Appeal No 66 of 2003, Adjudication Order Ref No.: EAD-
2/SS/VS/2018-19/2168.
228
Reg13(4) of PIT Regulations
229
Reg13(5) of PIT Regulations
230
supra 227, para 10.
Page 55 of 104

ANITA KASTURI v AO SEBI231
In a similar instance, it was opined by the AO was that PIT Regulations creates a playing field
for the investors in a way they all get equal treatment and opportunity to protect their interests by
imposing a duty to make disclosures beyond certain quantity. It was held that, “to translate this
objective into reality, measures have been taken by SEBI to bring about transparency in the
transactions and it is for this purpose that dissemination of full information is required. The
purpose of these disclosures is to bring about transparency in the transactions and assist the
Regulator to effectively monitor the transactions in the market.”232
K. NIRMALA V SEBI233
The issue in this case was regarding disclosure guidelines in the event of acquisitions of shares
and takeovers. According to the Tribunal, the Regulations’ objectives on acquisitions of shares
and takeovers are to ensure fair and equal treatment of all shareholders and protect their interests
and actions taken by SEBI to bring complete clearness in dealings and that is why disclosure is
necessary. It was held that "the Regulations require the making of disclosures on pre-acquisition
and post-acquisition stages. As observed, the purpose of these disclosures is to bring about
transparency in the transactions and assist the Regulator to effectively monitor the transactions
in the market. We cannot therefore subscribe to the view that the violation was technical in
nature."234
SEBI V SHRI RAM MUTUAL FUND235
The SC held that, “once the violation of statutory regulations is established, imposition of
penalty becomes sine qua non of violation and the intention of parties committing such violation
becomes totally irrelevant. Once the contravention is established then the penalty is to follow.”
231
Ms. Anita Kasturi, ADJUDICATION ORDER NO. EAD-2/AO/46/2013-14
232
ibid, para 17.
233
K. Nirmala v SEBI, [2013] 33 taxmann.com 330 (SAT - Mumbai)/[2013] 120 SCL 91.
234
ibid, para 4.
235
SEBI v Shri Ram Mutual Fund, (2006), 68 SCL 216 (SC).
Page 56 of 104

MR G JAYARAMAN V SEBI236
The honorable Tribunal were of the opinion that compliance of Code of Conduct is mandatory in
nature and non – announcement of ‘window closure’ while having UPSI by CO is in violation of
PIT Regulations and in case an employee takes undue advantage of this situation to trade/ not
trade in securities, the Compliance Officer would be liable 237 for such violation. It was held that,
“Model Code contained in PIT Regulations requires Compliance Officer to keep the trading
window closed during the period. Object of keeping the trading window closed is to doubly
ensure that directors/officers/ employees of the Company do not misuse ‘PSI’ and trade in
securities of the Company while in possession of such UPSI”.
MANMOHAN SHETTY V SEBI238
In this landmark judgment, SAT settled the question that whether violation of Code of Conduct
in compliance with PIT Regulations would amount to violation of PIT Regulations or not. The
Regulations have been framed under powers bestowed by Section 30 of SEBI Act, 1992239, and
Code of Conduct prescribed all to be considered as part of Regulations for all practical purposes
which would mean violation of Code of Conduct would mean violation of Regulations and the
use of word ‘shall’ 240 indicates that there is a bare minimum conduct expected from the
employees. The Tribunal reinstated that, “it needs to be appreciated that each company may like
to add certain activities regulation of which may be necessary for preservation of PSI. The
Board, cannot foresee all such contingencies and, therefore, it has laid down model code of
conduct prescribing bare minimum conduct expected from the directors/designated employees of
the.”
FCGL INDUSTRIES v AO SEBI241
The AO Officer reinstated the objectives of PIT Regulations of providing equal opportunities
and protecting interest of shareholders by bringing transparency in transactions and charged the
accused in the case and held that, “by virtue of this failure on the part of the Noticee to make
236
Mr G Jayaraman v SEBI, appeal no 182 of 2012.
237
ibid, para 25.
238
Manmohan Shetty v SEBI, appeal no 132 of 2010; 11 taxmann.com 282/108 SCL 48 (SAT Mumbai)
239
ibid para 7.
240
ibid para 9.
241
AO Order No PB/AO/117-120/2010 : FCGL Industries Limited
Page 57 of 104

necessary disclosure on time, the fact remains that the shareholders/investors were deprived of
the important information.”242
S D NAIWAL V AO SEBI243,
The issue at hand was that the Director of the Company through his broker bought securities
during the time trading window was not open, appellant claimed that his instructions to the
broker were made before the trading window was closed which was rejected by the Tribunal by
stating that it was his duty to inform the broker nor to purchase shares on his behalf when the
window is closed. The SAT stated that, “the evil of Insider trading is well recognized. The
purpose of PIT Regulations is to prohibit trading to which an insider gets advantage by virtue of
his access to PSI. The appellant is a whole time director and has involvement in finalization of
quarterly financial results and was fully aware of the regulatory framework and code of conduct.
Under such circumstances, when there is total prohibition on an insider when in possession of
UPSI, the quantity of shares traded becomes immaterial.”244
HINDUSTAN DORR V SEBI245
In this matter, the Tribunal held that, “the model code of conduct for listed companies mandates
closing of trading window only when an insider is in possession of any of the information
mentioned in clause (a) to (g) of clause 3.2.3. However, for the purpose of closing the trading
window, the model code of conduct, prescribed in the regulations, has listed only seven
specific contingencies relating to “the company” only. It does not require closing of the trading
window in respect of other PSI.”246Thus, it was established in this case that the transfer window
is applicable only to the PSI mentioned in the clause 3.2.3 and any PSI outside of this clause
does not mandate closure of transfer window.
PARSOLI CORPORATION LTD V SEBI247
SAT held that declaration of dividend is PSI as well as reversal of such a decision is equally PSI.
242
ibid, para 60.
243
S D Naiwal v AO SEBI, Appeal No 65 of 2012.
244
ibid, para 5.
245
Hindustan Dorr v AO SEBI, Appeal no 107 of 2011.
246
ibid, page 8.
247
Parsoli Corporation Ltd v SEBI, appeal no 146/2010.
Page 58 of 104

MANOJ GAUR V SEBI248
A contrary view was expressed in this case, the honorable SAT held that, “a bare perusal of
Schedule I in the model code of conduct will make it clear that the closure of the trading window
is not only confined to the period during the existence of UPSI but it can also be closed on other
occasions. However, if we read these provisions with the definition of PSI, it will make it
abundantly clear that as and when periodical financial results of the company are under
consideration, the information relating to periodical financial results of the company is
invariably price sensitive and trading window will be closed till such information is made
public.”249 In this case, it was established that information that has potential to be PSI can cause
the closure of the transfer window.
M/S VALECHA ENGINEERING LTD V SEBI250
The Tribunal while setting aside the impugned order of AO, SEBI, that Compliance Officer was
liable for not disclosing the trading window when such issue was not raised in issued show cause
notice, held that, “it is relevant to note in the show cause notice issued to the Compliance
Officer, that issue relating to failure on part of Compliance Officer in not closing the trading
window has not been raised. Thus, Compliance Officer has not violated any of the regulations. In
these circumstances, making the appellant company liable for not closing the trading window
cannot be sustained.”251
N NARAYANAN V AO, SEBI252
The honorable SAT displayed concern for rising instances of Market Abuse, which harms the
development and erodes investor’s confidence in market, which is based upon open access to
information. It reinstated the need for putting a stop to these activities which influence the
investors wrongly, and the abusers are able to profit out of such manipulated decisions. The SAT
held that, “Market abuse refers to the use of manipulative and deceptive devices, so as to
encourage investors to jump into conclusions. The same can be achieved by inflating the
248
Manoj Gaur v SEBI, appeal no 64 of 2012.
249
Ibid, para 15.
250
M/S Valecha Engineering Ltd v SEBI, [2014] 45 taxmann.com 10 (SAT - Mumbai)/[2014] 126 SCL 460.
251
ibid, para 3-4.
252
N Narayanan v AO, Appeal Nos.4112-4113 of 2013.
Page 59 of 104

company’s revenue, profits, security deposits and receivables, resulting in price rice of scrip of
the company. Investors are then lured to make their “investment decisions” on those
manipulated inflated results, using the above devices which will amount to market abuse.”253
HINDUSTAN LEVER LTD V SEBI254
The honorable SAT observed that a trial should be considered on “conclusive determination of
all aspects of insider trading and on specific jurisdiction in terms of the gravity of the offence”.
There was no finding in this case showing any serious violation of duty of not using inside
knowledge or trading by using such knowledge. The information in question must be shown to
be unpublished or not known generally and also that is price sensitive.
SEBI V DSQ BIOTECH LTD255
In the matter, SAT held that, “Regulation 3 aims to prohibit the insider from breaching duty to
the company which necessarily involves an element of manipulation or deceit, and the making of
some secret profits or personal gain by the insider. Accordingly, it is only when the insider has
dealt in shares of a company on the basis of UPSI, and made secret profits / personal gains that
the insider can be held liable for the violation of the regulation under Regulation 4.” The
Tribunal also pointed out that any other interpretation of Regulation 3 & 4 would create
absurdities as any corporate action based on UPSI would become prohibited, insiders would
become subject to strict liability when doing corporate activities and be held liable even though
he has not breached any fiduciary duty. 256
The Tribunal while penalizing DSQ Biotech Ltd by barring them, from dealing in securities
market for 5 years held that, “considering that Insider Trading is always treated as serious
irregularity in the capital market all over the world as they impinge on the basic tenets of
transparency, fair play, investor confidence, orderly development of the markets, it would be a fit
case for invoking the provisions of Section 11 of the SEBI Act to restore the same.”257
253
ibid, para 35.
254
Hindustan Lever Ltd v SEBI, (1998) 18 SCL 311 MOF.
255
SEBI v DSQ Biotech Ltd, WTM/TCN/140/IVD3/Jan/09, available at - Microsoft Word - 11B ORDER
DSQBL.doc (sebi.gov.in).
256
Ibid, para 5.3.7
257
Ibid, para 7.5.
Page 60 of 104

RAJIV B GANDHI V SEBI258
SAT Mumbai in the case established that according to Regulation 3, the possession of UPSI by
an insider must be the main aspect behind the trading of securities done by him, or in other
words, the information must influence/ cause the insider to deal, only then he would have said to
been made dealings on the ‘basis’ of that information. The Tribunal while discussing about the
burden of proof held that, “if an insider trades or deals in securities, it would be presumed that
he traded on the basis of the UPSI in his possession unless he establishes to the contrary. Facts
necessary to establish the contrary being especially within the knowledge of the insider, the
burden of proving those facts is upon him. The presumption that arises is rebuttable and the onus
would be on the insider to show that he did not trade on the basis of the UPSI and that he traded
on some other basis. He shall have to furnish some reasonable or plausible explanation of the
basis on which he traded. If he can do that, the onus shall stand discharged or else the charge
shall stand established.”259 The Tribunal also illustrated an exception in the form of an example
which allowed a person in possession of UPSI to sell his shares to meet some medical
emergency.
KEMEFS SPECIALITIES PVT LTD V SEBI260
In the matter, SAT Mumbai held that purchase of securities of a listed company which was
contemplating acquisition, by the shareholder of such target group through another privately
owned and controlled company has been held to be in infringement of Regulation 3(i).
DILIP PENDSE V SEBI261
The Court opined that, “even within the ‘preponderance of probabilities’ standard higher must
be the preponderance of probabilities for insider trading as the charge of insider trading is one
of the most serious charge, in relation to the securities market”.
258
Rajiv B Gandhi v SEBI, Appeal No 50 of 2007.
259
ibid, pg 7.
260
Kemefs Specialities Pvt Ltd v SEBI, Appeal No 54 of 2011.
261
Dilip Pendse v SEBI, Appeal No 80 of 2009.
Page 61 of 104

ANJALI BEKE V SEBI262
In the case, a person who received information from the MD of a listed company was held to be
an insider by SAT. It was observed that a person need not be related with the corporation to be
an insider and they become an insider after obtaining UPSI or getting access to it.
PRITIDEVI B. CHIRIPAL V AO, SEBI263
SEBI has viewed that a person related to a promoter director and known to him is rationally
anticipated to have UPSI.
GUJRAT NRE MINERAL RESOURCES LTD V SEBI264
In the matter, SAT Mumbai declared that a decision taken by a company to clear out a fraction of
its investment is no PSI and is not liable for any disclosure. It was of the opinion that if every
time an investment company had to make disclosures to the Stock Exchanges if it bought/sold
shares, then it would hamper the functioning of the company and therefore such information do
not affect price of securities.
MRS CHANDRAKALA V AO, SEBI265
It was held that if an insider is able to prove that they did not trade by influence of UPSI and did
the trading due to some other reason, he/she has not violated provisions of PIT Regulations. It
was also declared that on the basis of declaration of financial results, dividends and bonus issues,
if accused not only bought and sold their holdings during the time PSI was unpublished but also
before and after that information becomes public, then accused could not be said to be an entity
privy to UPSI and their trading pattern do not lead to inducement by UPSI.
VV KAUL V AO SEBI266
SAT gave a wide interpretation to PSI in the Regulation 2(ha) and included both information that
is directly or indirectly, related to or in connection with a company. It also declared that a joint
262
Anjali Beke v SEBI, Appeal No 148 of 2005.
263
Pritidevi B. Chiripal, AO Order No. A&E/MK/AO-27/2011.
264
Gujrat NRE Mineral Resources Ltd v SEBI, 2011, 110 SCL 594.
265
Mrs Chandrakala v AO, SEBI, appeal no 209 of 2011.
266
VV Kaul v AO SEBI, Appeal No. 55 of 2012.
Page 62 of 104

reading of Regulation 2(ha) and 2(k) related to UPSI, indicates that UPSI must have potential to
influence the value of the securities.
J.C. MANSUKANI V SEBI267
SAT observed that since the value of the contracts in question in the matter constituted nearly
65% of total order book of the Company, entering into such contracts therefore constitutes PSI
and needed to be disclosed.
ANIL HARSH V SEBI268
SAT relying upon the previous decision in Gujrat NRE Minerals Resources Ltd269, declared that
if an infrastructure company gets an order, they are under a mandate to disclose such information
to Stock Exchange even if it is not PSI. The condition whether any information would fall under
the bracket of PSI would vary with every case.
SHRUTI VOHRA V SEBI270
In the Whatsapp Message Case, the issue before the Tribunal was whether a message forwarded
on the platform regarding financial results of a corporation before it is available in public domain
would amount to an UPSI. The SAT was of the view that that any information will only be
deemed to be UPSI if the receiver knows it to be as UPSI. There is a need to prove
preponderance of probabilities that the impugned messages were unpublished and the accused
were aware of such information, for the accused to be charged with the offence of Insider
Trading.
B. REGANATHAN V SEBI271
SAT in the case held that in events of acquisitions and mergers, irrespective of the size and value
of the deal, such events are material and liable to bring in UPSI as it has potential to effect prices
of securities.
267
J.C. Mansukani v SEBI, Appeal No 185 and 192 of 2014.
268
Anil Harsh v SEBI, Appeal No 217 of 2011.
269
supra 264.
270
Shruti Vohra v SEBI, Appeal No 308 of 2020.
271
B. Reganathan v SEBI, Appeal No 272 of 2020.
Page 63 of 104

SUDHIR REDDY V SEBI272
SAT observed that knowledge of UPSI with persons connected to company provide them with an
opportunity to make gains or avoid losses by trading securities, such dealing is not based on
equal opportunity principle and is damaging to the investors’ interests and moderation of
securities market.
SADHANA NABERA V SEBI273
SAT answered the question whether an auditor with access to UPSI was considered as an insider
or not. In the case, the auditor had no concern with the information pertaining to the merger
which also not part of his duty, hence it was held that auditor cannot be considered as an insider.
272
Sudhir Reddy v SEBI, Appeal No 138 of 2011.
273
Sadhana Nabera v SEBI, Appeal No. 26 of 2007.
Page 64 of 104

4.2 LANDMARK FOREIGN CASES
SEC V TEXAS GULF SULPHUR CO274
The Court in the matter was of the opinion that any individual who is in control of inside
information must either unveil the information or abstain from dealing in the market. This is the
very first case where possession of UPSI mandated a duty to disclose such fact or not trade in
securities.
STRONG V REPIDE275
In 1909, the SC of US held that a director who is aware that the value of shares may potentially
be affected by certain action, cannot use such information to take shares from those who are
unaware of such action.
DIRKS V SEC276
In the landmark case, the SC of US ruled that tippees who receive the information from an
insider are also accountable if they had any reason to think that the tipper or insider had violated
any fiduciary duty in disclosing such information and the tipper received any private benefit
from such disclosure. The concept of ‘constructive insiders’ was also evolved in this case.
Constructive insiders refer to individuals who are not technically classified as insiders, but due to
their access to important information about a company, they are deemed to have the same level
of knowledge as insiders. They are subject to similar restrictions on trading stock as insiders, as
they have the potential to profit from non-public information. As a result, constructive insiders
may be required to disclose their trades and abide by insider trading laws, just like traditional
insiders.
U.S V GUPTA277 & U.S V RAJARATNAM278
In these landmark cases, the U.S Court held that if tippee uses any UPSI provided by the tipper
to trade in securities, it will be considered as an offence of Insider Trading.
274
SEC v Texas Gulf Sulphur Co, (1966) 446 F 2d 1301.
275
Strong v Repide, 213 US 419 (1909).
276
Dirks v SEC, 463 US 646 (1983).
277
U.S v Gupta, No. 10 crim 907.
278
U.S, SEC v Rajaratnam, 622 F.3d 159 (2d Cir. 2010).
Page 65 of 104

CHIARELLA V U.S279
In this case, an employee of Printing Press was held in the case of Insider Trading as he became
aware of certain UPSI and used it to make large profits by trading securities in the concerned
company. The Court declared that a person, who has access to UPSI, must either unveil such
information or refrain from dealing based on UPSI.
SEC V CLARK280
The court ruled that that "persons who receive confidential information from an issuer, under
circumstances indicating a duty of trust and confidence, become fiduciaries to the shareholders
of that issuer." The case established the principle that individuals who are not technically
classified as insiders can still be held accountable for insider trading if they have means to access
the confidential information and there was a duty to keep that information confidential. This
concept has been applied in many subsequent cases to prosecute insider trading by individuals
such as attorneys, accountants, and other professionals who have access to confidential
information. It was also held in the case that mere familiar ties are not enough to prove offence
of Insider Trading.
DONNA HUTCHINSON V SEC
In the matter of Donna Hutchinson281, the Court held that circumstantial details may fill
evidentiary gap if the inferences drawn from such details are made logically and rationally to
charge the accused with Insider Trading.
AARON V US SEC282 & CADY ROBERTS & CO. V US SEC283
The SC of U.S made the decision that if the trades are undertaken for corporate purposeswithout
any malafide intention, by an insider with UPSI, such trades would not violate Securities Law
provision of Insider Trading.
279
Chiarella v US, 445 US 222 (1980).
280
SEC v Clark, 699 F Supp. 839.
281
Hutchinson (Re), 2018 ONSEC 40.
282
Aaron v US SEC, 446 US 680, 1980.
283
Cady Roberts & Co. v US SEC, 49 SEC 907 (1961).
Page 66 of 104

_________________________________________________
CHAPTER V
EMERGING ISSUES OF INSIDER TRADING
_________________________________________________
This chapter will talk about the emerging issues of Insider Trading in India, Firstly, we will talk
about how difficult it is to prove an offence of Insider Trading, then we will move on to
effectiveness of Law in curbing Insider Trading, and lastly we will talk about Insider Trading as
WCC.
Insider trading is a serious financial offence having the ability to damage the integrity &
reliability of the securities market and negatively impact investor confidence. In recent years,
there have been several emerging issues related to insider trading in India and SEBI has been
actively investigating and prosecuting cases of insider trading, which has resulted in several
high-profile convictions.
Proving insider trading can be a challenging task, as it involves establishing a connection

between the insider's actions and the material non-public information they possessed during
trading. Additionally, the burden of proof rests with the prosecution, which can make it difficult
to secure a conviction. India's current regime on insider trading has mostly been a step behind in
being equipped to deal with the duty of preventing insider trading. There have been calls for
stronger framework to prevent the commission of insider trading and protect the integrity and
functioning of the securities market.
Also, there is a lack of awareness and education among investors and market participants about
insider trading and its implications. This can make it difficult to detect and prevent insider
trading, leading to a diminishing confidence of investors in the market. Hence, it remains a
significant concern, and there is a need for stronger regulations, better education, and increased
awareness to prevent this illegal activity and maintain the integrity of the securities market.
Page 67 of 104

5.1 EVOLVING STANDARDS OF PROOF REQUIRED TO PROVE AN OFFENCE OF
INSIDER TRADING IN THE COURT OF LAW
The focus of this part is upon the evolving standards of proof that are required to prove the guilt
of a party in matters of Insider Trading. Insider Trading is a very difficult crime to prove in the
Court of the law as it invites very high standard of proof to indicate the guilt of the accused but
due to the nature of this crime, most of the evidence that is gathered is circumstantial in nature
and makes it harder for SEBI to prosecute an accused successfully. It becomes quite a difficult
task to prove the connection between the circumstantial evidences and the act of the accused, as
these crimes are committed by people with know-how of the securities market and they are well
aware on how to evade the hands of justice. We will now look at few judgments and analyze the
way the Court scrutinized the proofs that were submitted to them.
5.1.1 RAJEEV VASANT SHETH v. SEBI284
In this case the SAT quashed the decision passed by the Whole Time Members, which found the
promoters of the company guilty of the offence of Insider Trading and heavily penalized them.
The brief facts are as follows, the company while facing certain financial difficulties held some
sale of shares so that the sum could be infused in the capital of the company. SEBI in its
arguments alleged that the said actions were in violation of Reg 4 of PIT Regulations.
The judgment of SAT was based on two main reasons -
 Proviso to Reg 4 Is not restrictive in nature
Reg 4 (1) of PIT Regulation declares that “no insider shall trade in securities when in possession
of UPSI and if a person trades in securities while in possession of UPSI his trades would be
presumed to have been motivated by the knowledge and awareness of the price-sensitive
information which was in his possession.”285
This regulation allows parties who are charged the chance by establishing the existence of the
conditions that are contained in the provision to prove their innocence, like in the present matter
the condition that the amount that was generated by the sale of the said shares was included first
284
Rajeev Vasant Sheth v. SEBI, Appeal No. 297 of 2020.
285
SEBI (PIT) Reg 2015, Reg. 4(1).
Page 68 of 104

hand in the working capital of the company. SAT also clarified that this provision is an inclusive
one and not confined to the provisions. Thus, an insider has the opportunity by proving
circumstances that may not be present in the regulation but are essential to proving his innocence
to prove their innocence.
 Necessity to Sell does not violate PIT
In the current case, the Company was having financial difficulties and had to find a way to
increase their capital, and SAT held that sale of shares fell within permissible circumstance and
is not against of any law. The SAT while giving this reasoning heavily relied upon previous
judgments of Abhijit Rajan vs. SEBI286, Rajiv B Gandhi & Ors. vs. SEBI287 , Gujarat NRE
Mineral Resources Ltd. vs. SEBI288, and Mrs. Chandrakala vs. SEBI289, all these cases have
this principle reasoning in common which states that, “if the Appellants were able to rebut the
presumption that they had traded on the basis of Unpublished Price Sensitive Information
because of a necessity to sell the shares then they would not be guilty of the charge of insider
trading.”
5.1.2 BALRAM GARG v. SEBI290
In this case it was alleged by the Chairman and the Managing Director of the Company PC
Jewellers, that their relatives who were shareholders of the company were involved in
wrongdoing of insider trading. In the matter, the main types of information that could be
considered as a UPSI were firstly, the information about buyback of securities, and secondly, the
information of withdrawal of the buyback transaction because of refusal of consent by the bank.
The SAT was of the opinion that the allegations made were correct and imposed fines on the
guilty party who weren’t content with the decision and filed an appeal in the Apex Court. The SC
rejected the decision of SAT due to the these reasons –
286
Abhijit Rajan vs. SEBI, Appeal No.232 of 2016.
287
Rajiv B Gandhi & Ors. vs. SEBI, Appeal No. 50 of 2007.
288
Gujarat NRE Mineral Resources Ltd. vs. SEBI, Appeal No. 207 of 2010.
289
Mrs. Chandrakala vs. SEBI, Appeal No. 209 of 2011
290
Balram Garg v. SEBI, 2022 SCC Online SC 472.
Page 69 of 104

 Cogent Materials required to prove Communication of UPSI
It was indicated by the Supreme Court that the trading patterns between parties cannot be
presumed to be a communication of UPSI between them. There is an essential need to furnish
materials documents or witnesses to show a relevant connection that can lead up to a
determination of communication that existed and a presumption of communication of UPSI will
be raised only if this material is available on record. Hence, it is a sine qua non that the
communication be proved through adequate material on record.
 Trading Pattern
Supreme Court was of the opinion that the sale of shares that was made and the timing of it, by
the alleged guilty party in the case were not due to any motivation caused by the knowledge of
UPSI, it was merely a personal decision having commercial effects.
5.1.3 PIA JOHNSON v. SEBI291
In this case Pia that is the appellant along with her husband were employees at Indianbulls
Company and this company had a subsidiary named India Land and Properties Limited (ILPL) in
which the parent company wanted to sell their 100% investment. Now, Pia and her husband
bought shares of this subsidiary company and subsequently on investigation by SEBI it was held
that the transactions that were made by the parties was after they got knowledge of UPSI of the
subsidiary company. The WTM passed an order against the parties but SAT was of different
opinion and set aside the earlier order made by them. Their reasoning is as follows -
 Decision to Sell ILPL Not UPSI
Court held that news about the sale of the shares of the company was already available in public
sphere and hence it wouldn’t be deemed to be UPSI. This was also intimated to the Stock
Exchange by the Company through proper channels. Hence, SAT held the buy made by the
Appellants were not influenced by UPSI, and thus is not in violation of Reg 4 (1) of PIT
Regulations.
291
Pia Johnson v. SEBI, Appeal No. 59 of 2020
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 Being an employee does not automatically indicate possession of sensitive information
The parties herein involved were existing employees of the company, there may have been
suspicion that they could have got in possession of the UPSI, but by establishing the fact that
there was no meeting held in the company to discuss the sale of ILPL, this possibility does not
arise.
5.1.4 HINDUSTAN LEVER LTD v. SEBI292
The facts are, there were 2 companies Hindustan Lever Ltd (HLL) and Brooke Bond Lipton
India Ltd (BBLIL), HLL purchased shares from Unit Trust of India (UTI) and after close to a
month they made an announcement about its merger with BBLIL & notified the Stock Exchange
accordingly. After its publication the price of the securities of BBLIL shot up and SEBI after
investigation concluded that HLL and BBLIL were responsible for Insider Trading. On appeal
this decision was demolished due to the following reasons –
 Information about merger was not UPSI
There was no UPSI as the information about the possible merger was reported in various
financial newspapers and this knowledge was available in public domain.
 UTI possessed market analysts and experts
It was held by the Appellate Authority that UTI had the privilege of getting specialist opinions
from market analysts & experts who were fully aware about the trends in the market and they
couldn’t allege that the information was of undisclosed nature.
The honorable SAT observed that prosecutions should be based upon conclusive determination
of all aspects of insider trading and on specific jurisdiction in terms of the seriousness of the
crime. There was no finding in this case showing any serious violation of duty of not using inside
knowledge or trading by using such knowledge. The information in question must be shown to
be unpublished or not known generally and also that is price sensitive 293.
292
Hindustan Lever Ltd V SEBI, (1998) 18 SCL 311 MOF
293
ibid.
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5.1.5 SAMEER ARORA v. SEBI294
Sameer Arora, the accused in the matter, was in charge of the equity investments for Alliance
Capital Mutual Fund (ACMF) whose assets were managed by Alliance Capital Asset
Management. A merger was about to happen between Digital Global Soft (DGL) and Hewlett
Packard (HP), Bansi Mehta & Co (BSM) was appointed to recommend an apt form of merger
ratio between parties. After, the suggestions, the Board decided to seek a third option before
announcement of merger. After announcement, the value of DGL scrip fell down and SEBI
accused Samir of possession this information that the prices of the scrips would go down and he
used this information to sell his holdings in ACMF & ACM. SAT overruled the charges of SEBI
due to the following reasons –
Suspicions, conjectures and hypothesis can’t replace Evidence
Tribunal was of the opinion that, “it is not possible for us to let mere suspicions, conjectures and
hypothesis takes the place of evidence as described in the Indian Evidence Act.”295Therefore,
mere speculations or theories as to occurring of Insider Trading is not enough to prove an
offence as this offence is of very serious nature. Moreover, there were recommendations from
multiple independent analysts to downgrade and sell DGL scrip, which was done by a number of
holders in the company. Hence, there is a need to be a separate and independent proof to
establish charge of Insider Trading.
5.1.6 RELIANCE INDUSTRIES LTD v. SEBI296
Reliance Industries’ stake (RIL) in Larsen & Toubro Ltd (LT) was more than 5% and had two
nominees on LT’s Board and thereafter they purchased more shares increasing their holdings to
around 11%. The said holding was sold to Grasmin Industries Ltd (GL) and the price at which
the shares were sold was more than the market price of the shares. A complaint was filed by
Investors Grievances Forum that RIL indulged in insider trading and made huge profit by selling
shares on a price more than the market value. The SAT decided whether the information about
the deal would amount to UPSI, it held that –
294
supra 225.
295
ibid para 68.
296
supra 213.
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 Information about deal did not emanate from LT
In the matter, the information about the impeding deal did not emanate from L&T, although
there were 2 nominees from RIL in LT, but still there were 15 other directors, hence they were
conscious about the deal, not due to their directorship but because of their position as potential
sellers, they were not the directing mind and will of LT.
 PSI must come to the insider by virtue of him being an insider
LT was unaware about the whereabouts of the deal and not involved in it in any shape or form;
hence the information w.r.t the impeding transaction couldn’t be classified as PSI under PIT
Regulations as the nominees of RIL were not insiders, they were aware of the deal because they
were the potential sellers in the case.
5.1.7 Preponderance of Probabilities
In another matter, SAT has held that finding of violation of due diligence requirement can be
sustained by establishing a standard of preponderance of probabilities i.e. a higher degree of
evidence than that is required by a Court of Law in a civil suit, yet less than the proof required to
uphold a conviction in the Court of Law in a criminal prosecution. 297 Following the above, it was
held by SAT in Sameer C Arora v. SEBI298, in the context of insider trading, that the notion of
producing evidence that indicates the wrongdoing beyond reasonable doubt is not applicable to
an enquiry conducted by SEBI as it does not arise out of a criminal case. The standard of proof in
civil or criminal matters is not a rigid standard and within each such standard there are degrees of
probability. SAT in the matter of Dilip S Pendse v. SEBI299 held that “even within the
‘preponderance of probabilities’300 standard, higher must be the preponderance of probabilities’
for insider trading as the charge of insider trading is one of the most serious charge, in relation
to the securities market”.
297
Imperial Corporate Finance and Services Pvt Ltd v SEBI, 2005, 61 SCL 197 (SAT).
298
supra 225.
299
Dilip S Pendse v. SEBI, Appeal No. 80/2009.
300
Shruti Vora v SEBI, Appeal No. 308 of 2020.
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SAT sought support for its conclusion from the following observations of Lord Denning:
“It is true that by our law there is a higher standard of proof in criminal cases than in civil
cases, but this is subject to the qualification that there is no absolute standard in either case. In
criminal cases the charge must be proved beyond reasonable doubt, but there may be degrees of
proof within that standard. Many great judges have said that, in proportion as the crime is
enormous, so ought the proof to be clear that is also in civil cases. The case may be proved by a
preponderance of probability, but there may be degrees of probability within that standard. The
degree depends on the subject-matter. A civil court, when considering a charge of fraud, will
naturally require a higher degree of probability than that which it would require if considering
whether negligence were established. It does not adopt so high a degree as a criminal court,
even when it is considering a charge of a criminal nature, but still it does require a degree of
probability which is commensurate with the occasion.”301
In the Whatsapp Message Case (Shruti Vohra v SEBI)302, the issue before the Tribunal was
whether a message forwarded on Whatsapp regarding quarterly financial results of a company
before it is available in public domain would amount to an UPSI. The Appellate Tribunal
observed that any information is only capable of being as UPSI if the individual receives it
knows it to be as UPSI. There is a need to prove preponderance of probabilities that the
impugned messages were unpublished and the accused were aware of such information, for the
accused to be charged with the offence of Insider Trading. Thus, SEBI used similarity between
the informations (with accused and other in the company report) and proximity of time as basis
for charging the accused in the matter.
5.1.8 Reasonable Expectation
In the matter of Chintalapati Raju v SEBI303, the SC observed that the expression ‘reasonable
expected’ can’t be a mere ipse dixit i.e. there must be existence of proof that can determine that
such individual has reasonable access to such UPSI and it is reasonable to expect he/she may
possess UPSI.
301
Bater v Bater, 1950, 1 All E.R. 458
302
supra 300.
303
Chintalapati Raju v SEBI, Appeal No. 16805 of 2017.
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5.1.9 Trade made for Corporate Purposes does not amount to a violation of PIT Regulations
In landmark case of Rakesh Agarwal v SEBI304, the Appellate Tribunal made the decision that if
the trades are undertaken for corporate purposes305 without any malafide intention, by an insider
with UPSI, such trades would not violate PIT Regulations. Although this was overturned in the
case of DSQ Biotech v SEBI306 but in further proceedings SEBI observed that only trading of
securities based on UPSI by an insider is prohibited and corporate activities based on UPSI
would not stand prohibited.
5.1.10 FINAL REMARKS
It can be observed from the judgments that SEBI has been charging the accused in most cases
with circumstantial evidence and not strong enough proof to identify their involvement in Insider
Trading. As can be inferred from the judgments that the Courts need certain standard of proof
that will certainly indicate the involvement of the accused in the offence of Insider Trading and
mere trading patters or incidental conditions will not be enough to establish the charges.
The Courts have scrutinized the evidences very vigilantly and have placed a high threshold
which the standard of evidence needs to satisfy in order for it to be deemed satisfactory in the
Court of Law and can be used to determine the charge of Insider Trading. SEBI needs to fill the
gap between circumstantial proofs to reasonable proofs that are acceptable in Courts to be able to
successfully charge people for Insider Trading.
SEBI needs to re-evaluate its' strategy while dealing with matters of Insider Trading as it seems
they over penalize the accused parties in these matters and are very eager to impose as many
offences upon the accused as possible. There should be a difference of severity with which
matters of small and large instances be dealt with. If every offence irrespective of its scale gets
the same treatment, it would create disharmony in the market. Thus, there is an urgent need to
use the limited resources which are at the hand of SEBI to be utilized in an efficient and effective
manner.
304
Rakesh Agarwal v SEBI, 2004, 1 Comp LJ 193 SAT.
305
Aaron v US SEC, 446 US 680, 1980.
306
DSQ Holdings Ltd v SEBI, 2005, 60 SCL 156 SAT.
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Another take away from the recent trend of judgments is that the SC as well as SAT has made an
attempt to point out the overwork that is done by SEBI while dealing in matters, and even
circumstantial evidences are bound to be rejected if they are not sufficient to imply the guilt of
the party involved.
Therefore, it is imperative to strike a balance between the rights of the accused and the standard
of proof needed to imply guilt of the party. With the current trend it is impossible to predict
whether the scope of the standard needed will broaden or get narrower, but justice must be
ensured by the Courts in any case.
The courts have a big role in developing the current trend of proofs that will suffice to prove
guilt in matters of Insider Trading, therefore it is essential that the courts do not such harsh
standards that will make it difficult for SEBI to prove the guilt of the accused party, nevertheless
these standards should not impeach on the rights of the accused party in any way. Also, the
Courts in their judgments could develop tests or methods which could be utilized by SEBI while
drafting their arguments to better frame the charges on the accused.
One thing that strongly emerges from the above analysis is that the best option to curb insider
trading is to have a separate stringent law to treat specific instances of omission or commission
as insider trading without the need to prove the malafide intention behind such transactions. It is
also necessary to look at the option of strengthening the Indian Evidence Act, 1872 307 to
recognize strong circumstantial evidence for proving charges of Insider Trading.
Insider Trading is one of those offences which is very difficult to prove in the Court of Law as
the evidence that is gathered is usually circumstantial in nature and the offender is generally an
expert in the field who knows how to evade the watchful eyes of SEBI. In cases, where SEBI is
able to gather evidence, the Court implements high standards of proof for successful penalty as
Insider Trading is considered to be a serious offence in the eyes of the law. Thus, SEBI has a
very difficult task at their hands to able to successfully prosecute acts of Insider Trading.
307
Indian Evidence Act, 1872, Act No 1 of 1872, available at - India Code: Indian Evidence Act, 1872.
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5.2 REGULATION OF INSIDER TRADING: ASCERTAINING THE EFFECTIVE
The moderation of activities related to insider trading can be effective in reducing its occurrence
and restricting the negative impact of insider trading, but it is not a foolproof solution 308. The
offence of Insider trading occurs when individuals with access to privileged information about a
company’s operational/ management activities, that has the capacity to influence the prices of its
securities, use this information to deal in company's securities to gain profits/ avoid losses, thus
giving them an unfair advantage over other investors. Regulation of insider trading seeks to
prevent such individuals from using insider information for personal gain by imposing legal
sanctions, such as fines or imprisonment, on those who engage in insider trading. The
effectiveness of such regulation depends on a many factors, including scope and severity of
regulations, level of enforcement, and ability of regulators to keep pace with changing
technologies and trading practices 309.
In some cases, regulation may deter individuals from engaging in insider trading, particularly if
the penalties for such activity are severe and the likelihood of detection is high. However,
regulation alone may not be sufficient to eliminate insider trading entirely, as there will always
be some individuals who are willing to take the risk of breaking the law for personal gain.
In addition to regulation, other measures such as corporate governance practices, enhanced

transparency and disclosure requirements, and investor education can also help to reduce the
incidence and negative impact of insider trading. Ultimately, a combination of approaches may
be necessary to effectively address insider trading and promote fair and efficient financial
markets310.
Issues faced by Regulators –
5.2.1 Intangibility, First Accessing Person & Information network
The information is an intangible commodity, it becomes harder to control a commodity which

can flow freely and be circulated in no matter of time. Even if an insider restricts themselves to
utilize this information, they may pass on it to a third person. As soon as the UPSI is transmitted
308
Marc I. Steinberg, “Insider Trading : A comparative perspective”, Insider Trading : Regulatory Perspective,
ICFAI University Press, at 159, 2007.
309
Lisa K. Meulbroek, “An empirical analysis of illegal insider trading”, 47 J. Fin, 1661, 1992.
310
Stepehen M. Bainbridge, “Securities Laww – Insider Trading”, Foundation Press Turning Popint Series, 1999.
Page 77 of 104

to third person, there is no certain way to tell that any such communication has been made 311 as
is evident from the cases mentioned above.
The Regulator faces a ‘first accessing person’ issue, i.e., in every instance of creation of PSI
within a company, there will always be a person that acquires the knowledge first. Even if this
person is under scrutiny, there is no way to stop that person from communication this
information. The issue of ‘first accessing person’ becomes more aggravated when there many
person(s) who have access to the UPSI. Some of these would be directly employed with the
company, some may come across this information indirectly, or third parties may get wind of
such UPSI due to temporary basis of corporation312. The issue doesn’t stop at the third party,
they may further distribute this knowledge to others 313, and hence this network of UPSI may
become very complex and impossible for the Regulators to trace to the source or forbid it from
spreading314.
The efficiency of any regulator in the security market would depend upon prevention of
communication of UPSI to stop insider trading. It can be argued that the first person accessing
this information must be under the highest scrutiny and should be penalized for any breach of
disclosure regulations, but it would be difficult to trace the leak in case there are multiple first
accessing person(s) and if the person being accused of trading on the basis of UPSI, really did
that influenced by communication or not, as was observed in the case of Samir Arora315.
Lastly, the more multifaceted the system through which the information passes, the more
imprecise it is going to be, the UPSI would be subject to many transformations as it changes
hands. Also, people may communicate the information without realizing the importance of the
information in the securities market. Hence, even if the Regulator is able to pin down an act of
311
Dr. Georgios I. Zekos, “Is the Law effective in protecting markets from insider trading?”, Hertfordshire Law
Journal, Volume 3, Issue 2-2005, pg 2-17, 2005.
312
Dr. Alexandre Padilla, “Can Regulation of Insider Trading be effective?”, Insider Trading : Regulatory
Perspective, ICFAI University Press, at 75, 2007.
313
Ibid.
314
Henry Manne, “Insider Trading and the Stock Market”, 59-75, 1966, available at - Henry G. Manne: Insider
Trading and the Stock Market (duke.edu).
315
supra 225.
Page 78 of 104

illegal insider trading, it would be difficult to find the true form of the UPSI and also the person
who was responsible for the breach. 316
5.2.2 Circumstantial Evidence, Subjectivism and Strategic Behavior
The regulatory authorities worldwide deploy multipronged stratagem to identify and prosecute
acts of insider trading317. The initial source originates from the individual(s) who inform on other
people, also known as whistleblowers. The other sources would include written documents or
conversations made on telephone, mails or messages which point towards an investor who dealt
influenced by UPSI. The final stratagem includes gathering of circumstantial or statistical
evidence indicating the same318.
SEBI usually lacks hard evidence that directly proves an act of insider trading has occurred due
to intangible nature of information communication during insider trading. There could
potentially be no record of UPSI being communicated and being used to trade in the market.
Consequentially, in most cases, SEBI has to rely upon circumstantial evidence that is gathered by
the investigators to prove the charge of insider trading.
Any attempt to rely upon statistical information to identify an offence of insider trading would
depend upon a certain variable of trading securities exceeding the threshold, the trading volume
be uncharacteristic in comparison to typical practice, the timing the trades are made is of
susceptible nature or the trade took place prior to a subsequent price movement 319. Eventually, if
SEBI is able to find a concrete method of identifying such crimes, it would become futile as the
insiders would also become aware of this potential method and modify their strategies to avoid
overlook of SEBI on their dealings.
In other words, if the insider knowing the regulator’s rule/ practice which triggers an inquiry is
influenced by movement in value of securities crossing a certain threshold, will be able to predict
when the Regulator will be called into action320. Hence, this will in turn become a avoidance
316
Sandep Parekh, Fraud, Manipulation and Insider Trading in the Indian Securities Markets, CHH Publications,
2019.
317
Lisa K. Meulbroek, “An empirical analysis of illegal insider trading”, 47 J. Fin, 1661, 1992.
318
ibid, pg 1689.
319
Mathew Spiegel and Avanidhar Subrahmanyam, “The effecicay of Insider Trading Regulation”, Working paper
257, Berkely University, at 9-10,1995.
320
ibid, at 27.
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strategy at the hands of the insiders to prevent their trading from reaching the necessary
threshold for investigation.
Another argument could be person(s) with less precise information and not having the ability to
envisage the trade would be more likely to trigger the investigations of SEBI into their trading
operations. Hence, when the moderation of the offence solely relies upon statistical data to
identify an offence, the majority of people prosecuted will be those who traded based upon
immaterial information and the true offenders would always be two-three steps ahead of the
Regulator321.
Moreover, this detection is based upon the condition that a person indulges in trading of
securities, on the other hand there may be cases that a person after getting the UPSI decides that
it would be better not to sell his shares, this would also amount to a decision taken on the basis of
UPSI, but it would be more hard to detect this type of insider trading. Since there is no trading
involved, this cannot be detected as Regulators usually rely upon statistical data and it would not
be easy for them to detect it as such an action simply does not involve stock value variation per
se.
Another area of concern that requires attention is that UPSI that is used to make decisions to
buy/sell/hold shares are based upon subjective opinion of the trader and would only successful if
the market also interprets the information as they did; otherwise the insiders also would have to
face losses322. In other words, while insiders may have the technical know-how and an advantage
by having UPSI, the success of their dealings relies upon interpretation by the other participants
in the market concerning the same piece of information and resultant expectations when UPSI
becomes available in public domain 323. Hence, the reality is that interpretation of the information
is subjective in nature and the result of trades made by insiders depends upon how the market
reacts to the same information, it creates another hurdle for the Regulator to find out whether an
act of Insider Trading has happened or not.
321
ibid, at 21.
322
Ludwig Lachmann, Capital, “Expectations and the Market Process: Essay on theory of the market of the
economy”, at 81-93, 1977.
323
ibid at 3-4.
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An additional cause of concern is that the Regulatory bodies wish to create a market where there
is no insider trading, but in reality it is just an illusion but the investors mistakenly believe that
insiders will not be taking advantage of them, which leads to more participation from the
investors which in turn increases the flow of stocks and consequentially the effect of insiders’
trades based on UPSI will get diluted in this increased trade, and their transactions will not be
able be able to be identified by the Regulator324325. As a consequence, the Regulators will not be
able to monitor irregular quantity or value change and specifically not able to determine the
informed trades among the large number of trades happening. Hence, the more liquid the market
is, the more harder it would be for the Regulator to detect and prosecute offences of Insider
Trading and more often than not the evidence would be circumstantial in nature as can be
observed in the securities market of present 326.
5.2.3 FINAL REMARKS
Insider Trading has been defined as an unwinnable war327 and it is quite clear that SEBI plays
catch up most of the time, with the wrongdoers getting penalized even in the successful matters
after many years of committing the crime. This is due to the limited resources in the weaponry of
SEBI and it would be not logical to constantly keep supervision over all companies as it would
cause hindrance in their functioning.
Few general observations that can be made regarding the general efficiency of the preventive
Insider Trading Regulations are, the first is that although the crime has not been eliminated or
reduced to a great extent, but it has certainly created a hurdle for individuals to commit Insider
Trading due to the increased number of requirements that are to be satisfied.
Secondly, the insiders have realized when the Regulator would come into action, and
accordingly have changed the nature of Insider Trading they get involved in, especially since
SEBI has been able to prove the charge of Insider Trading in very few cases, because of the type
of evidence they have been able to gather has usually been circumstantial in nature.
324
Jhinyoung Shin, “The optimal regulation of insider trading”, 5 J. Fin Econ., 1996.
325
Arturo Bris, “Do Insider Trading Laws Work?”, Yale ICE Working Paper No 00-19, 2 n.4, 2000.
326
Utpal Bhattacahrya and Hazem Daouk, “The world price of insider trading”, 57 J. Fin. 75, 2002.
327
A. M Louis, The unwinnable war on Insider Trading, Fortune 72, 1981.
Page 81 of 104

It can be observed from the Annual Reports released by SEBI, that the reporting of Insider
Trading offences has reduced328, but it is difficult to ascertain whether the Regulations have
worked in order to trim down the amount of active cases or Insiders have evolved their strategy
in order to avoid the watchful eyes of SEBI. To tackle this, whistleblower protection can aid in
determining and prosecuting cases of Insider Trading. Whistleblower protection can encourage
individuals to come forward with information about insider trading and increase the chances of
detecting and preventing the practice.
Another area of concern is that, it has also been suspected by SEBI in cases that the directors
involved in the merger/takeover process do in fact want the UPSI to leak so that the price of their
scrip increases and the company turns a large profit. This is another big regulation issue as a leak
of this magnitude would definitely have adverse effect on many market participants and even
more so it would be difficult to regulate or prosecute this kind of leak.
Thus, due to the intangible nature of the information and complexity of the communication of
information system, it has become very difficult for a regulatory body to successfully gather
evidence to charge a person for insider trading. Moreover, the Courts have developed a standard
of proof that is required to be followed by the Regulatory body in order for their gathered
evidence to be considered as valid in the court of law. Hence, the Regulatory bodies around the
world have a very difficult task at hand, i.e. to prevent Insider Trading, and if it occurs then
gather good evidence for prosecution and lastly to prove the offence in the Courts beyond
reasonable doubt.
Moreover, SEBI lacks the modern and technologically advanced regulating and surveillance
system along with the expertise in the already limited resources it possesses. It has a very broad
range of powers to realize its functions and objectives but at the same time, due to the handicap
of limited and below par resources, it is rather difficult for it to fulfill the expectations that have
been asked from them. Moreover, insider trading is not a crime committed by some random
person with no knowledge of what they are doing, instead it is done by experts in the field of the
securities market and are aware about the watchful eyes of SEBI and how to conduct themselves
in a way to avoid SEBI’s suspicion upon them and even if they are investigated, the evidence
gather against them is usually circumstantial in nature which further aids them in getting away
after committing Insider Trading.
328
SEBI Annual Report, 2021-2022.
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5.3 ISSUES OF INSIDER TRADING AS A WHITE COLLAR CRIME
White collar crime refers to non-violent crimes committed by individuals or organizations,

typically in a professional or business setting, for financial gain. The expression “white collar
crime” was coined by Edwin Sutherland in 1939, and he explained it as "a crime committed by a
person of respectability and high social status in the course of his occupation"329
This type of crime is often carried out by people in positions of trust, such as business
executives, accountants, or government officials, and can involve various forms of fraud,
deception, or theft. Unlike street crimes, which often involve physical violence, white collar
crimes are often characterized by their sophisticated methods and reliance on technology, such as
computer hacking or electronic financial transactions. Overall, WCC poses a significant risk to
the financial system and trust of the public in institutions, and requires careful regulation and
enforcement to ensure the integrity of financial systems and institutions.
Insider trading is a kind of securities fraud that occurs when someone (usually an insider) uses
non-public information to make stock trades that result in a financial gain. This is considered
illegal because it creates an unfair advantage in the market, and undermines the integrity of the
financial system. Insider trading involves someone with access to non – public information, and
using that information to make trades that result in a profit/ avoidance of losses. Hence, it should
be considered as a serious WCC threatening the evenhandedness & integrity of the securities
market, and which can lead to significant financial harm for others in the market.
There has been a significant hurdle in preventing and enforcing white collar crimes worldwide,
as usually in cases of insider trading, i.e., offences are committed by officers at high position in a
company and due to the complexity of the crime, it becomes very difficult to prosecute the
offenders. Although it causes more damage to society, very few offenders have been found
guilty, and even they are found guilty, only monetary penalties are imposed on them and no jail
terms are awarded which indicates that commission of insider trading does not invite harsh
penalties and any accused on successful prosecution has to pay monetary penalty only.
329
Edwin Sutherland, in a presidential address to the American Sociological Association, Stuart P Green, “The
Concept of White Collar Crime in Law and Legal Theory”, 8:1 Buff L.R.1 (2005)
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5.3.1 POSITION IN INDIA
There is no statutory definition of the concept of WCC in India, but in 47th Report of the Law
Commission on ‘The Trial and Punishment of Social and Economic Offences’330 it is defined as,
“a crime committed in the course of one’s occupation by a member of the upper class of the
society.”331 The SC in Ram Narain Poply v. CBI332 observed that “the white-collar crimes are
nothing but cases of private gain at the cost of the public, and lead to economic disaster.
Socioeconomic crimes and white collar crimes are reportedly the intersecting circles.”
WCCs are different to other forms of crimes, as it involves pre-planning and a scheme to commit
an offence, as was observed in the case of State of Gujarat v. Mohanlal Jitamalji Porwal 333, the
court held that, “the offence is committed with cool calculation and deliberate design with an eye
on personal profit regardless of the consequence to the community. A disregard for the interest
of the community can be manifested only at the cost of forfeiting the trust and faith of the
community in the system to administer justice in an even handed manner without fear of criticism
from the quarters which view white collar crimes with a permissive eye, unmindful of the
damage; done to the national economy and national interest.”
Taking into account the characteristics334 of the offence, the class of the offenders involved, &
the effect of the offence on society and the economy, Indian legal framework also considers
securities related offences as WCC. Unfortunately, India hasn't yet been able to create a track
record of successfully enforcing insider trading cases that could serve as deterrence to future
offenders335. Insider trading should be perceived as a WCC in India, and it is under the regulation
of SEBI, which is the country's securities regulator. Under the SEBI (PIT) Regulations, 2015,
insider trading is prosecutable and punishable, and any person who engages in such activity can
be subject to civil penalties and criminal prosecution.
330
Law Commission on ‘The Trial and Punishment of Social and Economic Offences’, 47 th Report, available at -
2022080816-1.pdf (s3waas.gov.in).
331
ibid.
332
Ram Narain Poply v. CBI, 2003 Indlaw SC 51.
333
State of Gujarat v. Mohanlal Jitamalji Porwal and Anr (AIR 1987 SC 1321).
334
Sreekumar Ray, Insider Trading: A White-Collar Crime and its Impact on Share Market, 2014, available at -
http://dx.doi.org/10.26643/think-india.v17i3.7806.
335
Madhav Misra, “Insider trading: Indian perspective on prosecution of insiders”, 2011, available at -
http://dx.doi.org/10.1108/13590791111127732.
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If a person is found guilty of insider trading in India, they may face fines and imprisonment. The
SEBI can also initiate civil proceedings against the individual and order disgorgement of any
profits made from the insider trading. In addition to SEBI, the Ministry of Corporate Affairs and
the Central Bureau of Investigation also have the authority to investigate and prosecute insider
trading cases in India. Overall, insider trading is taken seriously as a white-collar crime in India,
and the country has implemented strict regulations and penalties to deter individuals from
engaging in this illegal activity. 336
5.3.2 INSIDER TRADING AS WHITE COLLAR CRIME
In Lord Vane’s view, the underlying principle behind prohibition on acts of insider trading is
“the obvious and understandable concern about the damage to the public confidence which the
insider dealing is likely to cause and the clear intention to prevent so far as possible what
amounts to cheating when those with inside knowledge use that knowledge to make a profit in
their dealing with others.”337
There are certain characteristics 338 that can be observed in a WCC that is also common to an act
of Insider Trading, firstly it includes abuse of position or status, in Insider Trading the UPSI is
accessible to the insiders due to their position or connection within the company. Secondly, they
owe a fiduciary duty or there is responsibility on them to act in a just manner, in insider trading,
there is duty upon them to act in the best interest of investors and the company. Thirdly, the
crime is done in order to gain some person benefit, like in insider trading, the insider is able to
make large profits or avoid massive loss and usually the commission behind of WCC is some
financial gain. Also, there is also concealment of the activity that indicates that the perpetrator
knows that the act he/she has committed is wrongful. Lastly, there is cost to society, i.e., in
matters of insider trading the loss is suffered by the other investors who were not aware about the
UPSI and were unable to act in time to avoid loss.
336
Sandeep Parekh, “Prevention of Insider Trading & Corporate Good Governance”, Indian Institute of
Management, Ahmedabad Working Paper No. 2003-01-03, 2005.
337
Attorney General’s Reference No. 1 of 1988 BCC 765 affirmed by the House of Lords as reported at (1989) BCC
625.
338
Joan Macleod Heminway, “Criminal Insider Trading in Personal Networks”, Stetson Law Review, available at -
Heminway - Sheridan Template_HC_Final(JMHcomments) (Revised KR) (stetson.edu).
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The directors/ employees indulged in corporate affairs of the company have a fiduciary duty to
act in best interest of company as well as shareholders as they are in some sense trustees of the
company as they are responsible for the functioning of the company 339. The Insiders by misusing
PSI breach the trust position of trust and confidence which is in violation of the duty that is
imposed upon them. The Directors are officer of the company who has the obligation to act in a
bona fide manner and not use their powers for selfish purposes. Also, by committing to Insider
Trading, they commit ethical and moral violations340 as being an officer of the Company, there is
certain CoC that is required to be followed and misusing their position to gain PSI and then using
it to trade in securities while the other shareholders do not have any clue about the PSI, is unfair
on the shareholders as they are made devoid of making profits 341.
In the event of Insider Trading, there are no precisely clear identifiable victims and the effect of
the crime may not be as serious to compel someone to seek legal action alone or contact the
authorities for action in this regard342. However, these logics are not justifiable as there are
people who suffer due to the financial misconducts but because they lack the ability to sue the
perpetrators on their own, these victims are rarely identified. Both the Insider Rules and the
Securities Law do not permit private actions against the perpetrator. According to Indian law, the
SEBI itself must take the first steps in any legal action against a perpetrator of a securities based
offence.
Moreover, the nature of the crime makes it so that there are long-lasting ramifications from
Insider Trading in terms of its impact. Every case further erodes the assurance of investors in the
market. As a result, the basic objective of SEBI, which is to safeguard investors' interests and to
foster growth and regulation of the securities market, is not achieved 343. As a result, such
offences do significant harm to investors and the securities industry in one go. It is also a serious
339
Subramanian Swami, “Corruption and Corporate Governance in India: Satyam, Spectrum, and Sundaram”,
2009.
340
Kenneth Polk & William Weston, “Insider trading as an aspect of white collar crime”, Sage Journals, Vol 23
Issue 1, 1990, available at - Insider trading as an aspect of white collar crime - Kenneth Polk, William Weston, 1990
(sagepub.com).
341
Abhishek Rudra, “Insider trading as a white collar crime: limitations and scope of SEBI Regulations, 2015”,
2020.
342
Siladitya Dasgupta & Deepsikha Bhowal, “Insider trading laws in India – Status before and after the enactment
of Indian Companies Act, 2013”, International Journal of Law and Legal Jurisprudence Studies : ISSN:2348-
8212:Vol 2 Issue 5.
343
Tomasic and Pentony, 1989. “The prosecution of insider trading: Obstacles to enforcement”. Australian & New
Zealand Journal of Criminology, 22(2), pg.65-81.
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offence because it undermines the integrity of the stock market by affecting the fairness of
opportunity in the financial system. It gives individuals with access to privileged information an
unfair advantage over other investors and can lead to market manipulation and insider abuse.
Therefore, insider trading is typically classified as a WCC because it involves financial
misconduct and is typically committed by individuals in positions of power or authority, who use
their access to privileged information to gain an unfair advantage in the market.
Thus, India should also consider recognizing Insider Trading as a WCC due to the nature of the
offence and enacting a special mechanism/ provision to pronounce it as WCC to prevent its
occurrence and protect the investors & the securities market from its impacts. The offences at
high-level must invite a higher degree of punishment from the law and SEBI must be provided
with advanced authority and tools to investigate matters and collect evidence to justify their
charges of insider trading.
There are a few causes344 that are common in many jurisdictions for failure in prosecution of the
Insider Trading as WCCs, which are :-
Social status & Political interference
The people involved in insider trading are people of high social status and have social, political
or economic power to influence charges against them. They are often influential and well-
connected individuals who may have political backing. This can make it difficult for law
enforcement agencies to investigate and prosecute these cases without facing political pressure.
Complexity
The offenders are often professionals in their field and are possess the technical know-how to
commit an offence and cover their tracks, also in case of investigation they are aware of the
procedure that will be adopted against them and hence they act accordingly to tackle this
investigation and make it harder for the investigators to gather any evidence.
344
Aqueeda Khan, “White Collar Crime: a study of emerging trends in India”, Shodganga, available at -
http://hdl.handle.net/10603/129394.
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Chain Linking
These offences are often committed by not one person, but by a group of experienced
professionals as a group possessing lot of influential ability and expertise and make it harder for
the investigation body to gather evidence against them through non-compliance.
Lack of Evidence & Slow legal process
It often involves complex financial transactions, which can be difficult to trace and prove.
Additionally, many offenders take measures to cover up their tracks, such as shredding
documents or deleting electronic files. India's legal system can be slow and cumbersome, which
can make it difficult to prosecute such crimes in a timely manner. Additionally, they can afford
high-priced lawyers who can use legal tactics to delay the proceedings.
Inadequate resources & Limited regulatory oversight
Law enforcement agencies in India may not have the necessary resources, such as trained
investigators and forensic accountants, to investigate insider trading effectively. In some cases,
insider trading can be the result of regulatory failures or loopholes in the law. If regulators are
not able to detect and prevent these crimes in the first place, it can be difficult to prosecute them
after the fact.
5.3.3 FINAL REMARKS
In the present times, WCCs are difficult to prosecute due to the many hurdles that make it harder
for any judicial body in the world to penalize such criminals. Also, due to the difficult nature of
the task of convicting white collar criminals, the enforcement and regulatory machineries do not
give much importance to WCCs as the legislation severely lacks in the department of making
law against WCC.
The current Regulations are not adequate enough to stop the offenders from committing Insider
Trading as they are professionals of their field and have the know-how to avoid suspicion from
SEBI. Additionally, SEBI lacks enough resources at the moment to keep a constant watch over
investment activities of insiders, employees or third parties during the merger procedure.
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SEBI is always playing catch up with the offenders of Insider Trading and in the cases they are
able to investigate, very few have lead to prosecution and even fewer have lead to successful
penalty upon the offenders as it is very difficult to prove a charge of Insider Trading. In the few
instances the charge is proved, the offenders have been either warned, passing of consent orders,
restricted from trading or the most severe punishment have been imposing of fines. There is not
any recorded cases of Insider Trading which has lead to imprisonment, even in the punishment
provisions for Insider Trading, the penalty imposed is fine only, on reading of other provisions
does the option of imprisonment arise. Thus, Insider Trading becomes more of an opportunity
rather than something to not indulge in, as the maximum punishment would be fines which
would not be a damaging proposition for those who indulge in insider trading.
SEBI lacks the modern and technologically advanced regulating and surveillance system along
with the expertise in the already limited resources it possesses. It has a very broad range of
powers to realize its functions and objectives but at the same time, due to the handicap of limited
and below par resources, it is rather difficult for it to fulfill the expectations that have been asked
from them. Moreover, insider trading is not a crime committed by some random person with no
knowledge of what they are doing, instead it is done by experts in the field of the securities
market and are aware about the watchful eyes of SEBI and how to conduct themselves in a way
to avoid SEBI’s suspicion upon them and even if they are investigated, the evidence gather
against them is usually circumstantial in nature which further aids them in getting away after
committing Insider Trading.
Thus, to tackle insider trading as a WCC, there are the law needs be changed or enhanced. One
way could be to impose a higher form of responsibility on the individual(s) who handle the PSI
and creation of a mechanism that makes it harder for the information to get leaked and in case it
does, there should be a way to track it to the source who leaked the information in the first place.
Moreover, the offences at high-level must invite a higher degree of punishment from the law and
SEBI must be provided with advanced authority and tools to investigate matters and collect
evidence to justify their charges of insider trading. Technology like device tapping to retrieve the
information of communication of UPSI or trade made based on UPSI would help SEBI a lot in
prosecuting the offenders.
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_________________________________________________
CHAPTER VI
CONCLUSION & SUGGESTIONS
_________________________________________________
SEBI is a powerful institution having the responsibility to regulate the securities market in the
interest of the investors and the general public. With the liberalization of the economy and the
market-based growth assuming centre-stage, it is inevitable that an effective regulator take on the
responsibility to ensure that the stock exchanges operate with trust and fairness especially when
new financial instruments are brought into use to raise resources by multiple users of the
securities market. It is indeed a complex and challenging job which demands expertise in a
variety of disciplines and operations particularly in the context of changing policies of the
government and of global market players. Given the impact of information-communication
technologies and the anonymity it gives in facilitating fraudulent transactions, the Board has to
keep an eye also on international developments in law and policy to be able to allow investment
to grow while taking care that it happens according to the law and fair market practices.
Naturally, the SEBI Act has been given large powers since it is participating in the nature of
legislative, executive and adjudicating functions, under which SEBI has been promulgating
Regulations from time to time. To be able to use these powers imaginatively and intelligently,
SEBI needs to put its house in order, professionalize its operations, strengthen its manpower
particularly its investigative and legal divisions and act independently without fear or favor.
6.1 SEBI’S NOT UPTO THE MARK APPROACH
It is unfortunate to see the state of affairs where an independent agency with large powers is
acting as if it is an extension of government department with usual inefficiency and lack of
responsibility. It will be unfortunate if the people were to continue to suffer great financial and
social distress again and again from unscrupulous elements in a market economy exploiting the
laxity and inability of regulators who have been entrusted the job of preventing them.
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Enforcement & Regulation Concerns
SEBI is always playing catch up with the offenders of Insider Trading and in the cases they are
able to investigate, very few have lead to prosecution and even fewer have lead to successful
penalty upon the offenders as it is very difficult to prove a charge of Insider Trading. In the few
instances the charge is proved, the offenders have been either warned, passing of consent orders,
restricted from trading or the most severe punishment have been imposing of fines. There is not
any recorded cases of Insider Trading which has lead to imprisonment, even in the punishment
provisions for Insider Trading, the penalty imposed is fine only, on reading of other provisions
does the option of imprisonment arise. Thus, Insider Trading becomes more of an opportunity
rather than something to not indulge in, as the maximum punishment would be fines which
would not be a damaging proposition for those who indulge in insider trading.
SEBI lacks the modern and technologically advanced regulating and surveillance system along
with the expertise in the already limited resources it possesses. It has a very broad range of
powers to realize its functions and objectives but at the same time, due to the handicap of limited
and below par resources, it is rather difficult for it to fulfill the expectations that have been asked
from them. Moreover, insider trading is not a crime committed by some random person with no
knowledge of what they are doing, instead it is done by experts in the field of the securities
market and are aware about the watchful eyes of SEBI and how to conduct themselves in a way
to avoid SEBI’s suspicion upon them and even if they are investigated, the evidence gather
against them is usually circumstantial in nature which further aids them in getting away after
committing Insider Trading.
It is not the fault of SEBI that the nature of crime usually involves circumstantial evidence as
they have to go to the Court with these evidences and try to establish a nexus between the act and
the evidence to prove the commission of insider trading. SEBI does not have the power to put
taps in the communication devices as it was deemed that they might abuse it, so the only way left
is for them to request records from the companies but there is a need for more contemporary
approach that aids in not only gathering of better evidence but also from preventing potential
cases of insider trading from happening. SEBI does not take a precautionary approach towards
Insider Trading and has a rather reactionary approach, as they will not act in instances wherein
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they are informed about happening of a potential Insider Trading offence and only after
happening of it will they come into action.
Also, due to the far reaching implication of the globalization of world economies, the offence of
Insider Trading can transgress boundaries. The Indian law lacks behind in this area as compared
to legal frameworks of other countries where extraterritorial application of Insider Trading laws
is present. Thus, the domestic investors and the securities market are not protected from the acts
of foreign nationals in this regard. There is no provision talking about the mechanism to
investigate, prosecute or penalizing foreign nationals in the Insider Trading laws. The law also
lacks in addressing the issues wherein the offence was committed in the Indian territory but the
evidence is outside India. There may be some treaties which might make this task possible for
SEBI in certain cases but this is true to very countries as the cooperation agreement not even
covers one-fourth of the total number of countries in the world.
There might also be a need for creation of a timeline within which SEBI needs to complete its
investigation as otherwise we have observed in many cases that decade old matters are being
prosecuted in present times.
Legislative Concerns
In the legislative sphere, SEBI has also some work to do, many instances of Insider Trading
occur during the acquisitions and merger between companies as these type of events have a huge
influence on the prices of the scrips of the companies. Thus, an imperative need arises to address
the issue of prevention of Insider Trading during such transactions which is lacking at the
moment. The principle of disclosure or abstain must be applied in matters of such transactions
and a mechanism should be implemented in order to create a self regulatory system within the
companies to avoid instances of Insider Trading.
There is also issues in definitional interpretation of terms in the Regulations, as for instance, vide
the SEBI (PIT) (Amendment) Regulations, 2018345 and the SEBI (PIT) (Amendment)
Regulations, 2019346, SEBI recognized that market intermediaries and fiduciaries regularly
handle UPSI and are in a position to abuse the information asymmetry. Therefore, the
345
supra, 126.
346
supra, 127.
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Regulations were amended to impose several compliance obligations on such market
intermediaries and fiduciaries. These Regulations have caused some upheaval, specifically in
respect of the compliance obligations that it seeks to cast on listed companies and intermediaries.
Regulation 9(4)(iv) 347 requires the intermediary and fiduciary to mandatorily identify the
employees up to two levels below the CEO as ‘designated persons’, irrespective of their
functional role in the company or ability to have access to UPSI. Regulated entities, having a flat
organizational structure, will be required to cover a large number of employees under the ambit
of ‘designated person: Accordingly, public side employees who do not have any access to UPSI,
will be classified as ‘designated persons’ simply on account of their designation/grade and
without taking into account their role and functions. This substantially dilutes the concept of
identifying ‘designated persons’ as a group of people who could potentially have access to UPSI
on the basis of their role and function in the organization. There is no doubt that the legal
framework will continually evolve as the regulator seeks to keep pace with the market and iron
out the lacunas.
Regulation 2(d)348 puts a person who might have access to UPSI up to duration of 6 months
before the commission of the activity, is to be referred as a connected person. This is an issue as
an individual with access to UPSI who has resigned before 6 months of happening of the
concerned activity would not be a suspect under the law. Moreover, any event of merger and
acquisition is a long process as the companies have to comply with the competition laws and it
may take a period more than 6 months for the deal to finalize, which makes the provision even
more inefficient.
Further sharing of UPSI for legitimate purposes is valid under the PIT Regulations but what is
considered to be ‘legitimate purpose’ has not been defined under the Regulations, thereby more
confusion as to what acts would or would not fall under this exception. Other terms like
‘performance of duty’ or ‘discharge of legal obligation’ also needs an explanation.
Another important concern is the text provided in the Regulation 4 and the Note attached to it,
while under this Regulation the accused has the opportunity to prove his innocence by way of
proving certain circumstances that have been provided in the regulation, the Note stated that
347
Reg 9(4)(iv) of PIT Regulations, 2015.
348
Reg 2(d) of PIT Regulations, 2015.
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reasons for such trade are not relevant to determine whether he committed the act or not. This
creates confusion as a holistic reading of Regulation 4 creates ambiguity in the minds of its
readers w.r.t the mens rea element of the offence.
Moreover, there are no remedies available for private or class institution of suits against insider
trading as SEBI takes the burden on themselves to investigate and prosecute the offenders, also
under Section – 26349, no courts have the authority to take cognizance of matters that are
punishable under SEBI Act.
6.2 SEBI 2021-2022 ANNUAL REPORT350 & CURRENT SITUATION
SEBI has made incessant efforts to realize its objectives of creating transparency in a fair market
by empowering investors as well as taking help from various committees to strive to improve the
ever multifaceted Securities Law. It has also adopted various technological enhancements to
further regulate the market in a more proficient way. In an attempt to continue the tradition of
consultative process for rule making, they have floated papers for comment during the FY and
have set up 15 advisory/steering committees351 to help SEBI on policy matters having
representation from various stakeholders.
An attempt has been made to improve regulation and supervision over compliances made by
listed companies. The scope of Related Party Transactions has been broadened. 352Also, great
attention has been given to investor protection, by establishing Securities Market Trainers
Program to increase investor’s awareness and education in the securities market. An app named
Saa₹hi SEBI, has also been launched to further make it easier for investors to gain such
knowledge. 353
Technology has been a major tool in the weaponry of SEBI to better monitor and regulate the
market, as they have integrated various data analytics technology to uncover complex mode of
operations. These technological upgrades help SEBI in deterring misconduct and thereby
349
Sec 26 of SEBI Act, 1992.
350
SEBI Annual Report, 2021-2022, available at - SEBI | Annual Report 2021-22.
351
ibid, pg 3.
352
ibid, pg 5.
353
ibid, pg 190.
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inspiring the investors’ confidence in the market. It has also implemented robust in-house alert
systems to supervise practices in various market segments for activities like Insider Trading. 354
There has been a decrease in the number of reported cases of Insider Trading last FY compared
to the year before (from 210 to 119)355. Now, it may be difficult to ascertain whether this has
been due to the improved mechanism of SEBI or insiders have found a modus operandi to avoid
the current surveillance checks. During the 2021-22 FY, while almost 70% appeals356 were
dismissed, SEBI has overtaken 17 new cases357 of Insider Trading to investigate and
investigation on 48 cases358 were completed. Moreover, in an attempt to promote whistle
blowing, the maximum reward has been increased from 1 cr INR to 10 cr INR359.
Certain instances360 of insider trading have also been reported in the Report. These instances
referred to trading done based on UPSI during a merger deal. The investigations revealed
exchange of UPSI done by insiders to outsiders, non – disclosure of connection to the director of
the merging company and even trading only during the time when the entity was in possession of
UPSI in different cases. Moreover, SEBI imposed penalties worth 2.88 cr Rupees361 for violation
by different entities.
6.3 INSIDER TRADING – AN UNWINNABLE WAR w.r.t STANDARDS OF PROOF
Insider Trading is a very difficult crime to prove, from the legislative loopholes to the limited
investigative authority, SEBI is ill equipped to successfully deal with the matter of Insider
Trading. It is even harder to predict Insider Trading as it is driven by human behavior &
incentives which is difficult to predict and also it is committed in secret and only if a trade is
under investigation would any questions over the illegal act arise.
In the matters SEBI has been able to gather evidence against the accused, the Courts have
created a stumbling block for them, i.e., they require a higher standard of proof to determine
whether an act of insider trading has occurred or not. In the Annual Report of SEBI, the numbers
354
ibid, pg 179.
355
ibid, pg 171.
356
ibid, pg 215.
357
ibid, pg 196.
358
ibid, pg 196.
359
Reg 7D of PIT Regulations, 2015.
360
ibid, pg 199.
361
ibid, pg 206.
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of cases that SEBI has successfully been able to prosecute are very less. As discussed in Part 5.1
it can be observed how the Courts have scrutinized the circumstantial evidence that has been
provided by SEBI and have created a large burden on the regulatory body to prove the
commission of offence by discovering a nexus between the circumstantial evidence and the
reason behind commission of the offence through material records to successfully satisfy the
Court.
In instances wherein the accused were found to be with UPSI, Courts were of the opinion that it
was necessary to find out whether the accused were aware of the sensitive nature of the
information, and in cases wherein they traded during the time of UPSI, it was held that such
trading patterns cannot be said to be made on the basis of UPSI unless there accused have
reasonable access to the UPSI.
It has also been observed by Court that prosecutions should be based upon conclusive
determination of all aspects of insider trading and on specific jurisdiction in terms of the
seriousness of the crime. This means that mere suspicions, conjectures and hypothesis should not
take place of evidence and with preponderance of probabilities principle in application, the
required standard lies somewhere more than that needed in civil and less than that needed in
criminal matters. The intention of the offender has been considered important in some cases and
in others it has been ignored, so there is no straitjacket test that can help determine whether
mensrea is important to prove an offence of Insider Trading.
SEBI has not been up to the mark in prosecuting matters of Insider Trading due to its inability to
prove the offence on sound reasons and logic. It is not the fault of SEBI that the nature of crime
usually involves circumstantial evidence and even when they try to establish a nexus between the
act and the evidence to prove the commission of insider trading, the Court upholds a higher
acceptable standard for evidence. SEBI severely lacks in the investigation and technological
department to be able to procure a better standard of proof which hurts them in the prosecution
process.
Thus, SEBI needs to re-evaluate its' strategy while dealing with matters of Insider Trading as
they have already seen their attempts at prosecution have more often than not failed in the
Courts. Also, they need to be provided with modern and technologically advanced surveillance
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equipments along with adoption of a dynamic investigation technique to procure high standards
of proof that will indicate the responsibility of the offender in the Court and satisfy the standards
set by judges in matters of Insider Trading.
6.4 POSSIBLE SOLUTIONS
The first step in preventing insider trading is to establish clear rules and regulations that prohibit
the practice. This includes both criminal and civil penalties for those who engage in insider
trading, as well as for those who aid and abet insider trading. Governments and regulatory bodies
play a crucial role in enforcing these regulations and ensuring that they are followed. In addition,
the regulations should be periodically updated to ensure they remain relevant in the face of
changing market conditions and technological advancements.
Another important aspect of preventing insider trading is education and training. This can
include training for company employees on the rules and regulations surrounding insider trading,
as well as training for investors on how to identify and avoid insider trading. Educational
initiatives can also raise awareness about the negative impact of insider trading on the economy
and encourage individuals to report suspicious activities to regulatory bodies.
Another effective approach to preventing insider trading is to increase transparency in the

market. This can be achieved through measures such as requiring companies to disclose all
material information to the public in a timely and accurate manner, and through the use of
technology to monitor and detect suspicious trading activity. In addition, measures such as the
mandatory disclosure of all trading by insiders and the requirement to report all trading activities
to regulatory bodies can increase transparency and make it easier to identify potential cases of
insider trading.
Another important aspect is that SEBI is very limited in its resources and tools at their disposal
and require a large workforce to be able to operate more efficiently. According to the SEBI
employee profile, there are 980 active employees in the different grades as of 31 March, 2022362.
362
SEBI Employee Profile, available at - https://www.sebi.gov.in/department/human-resources-department-
37/employee-profile-in
sebi.html#:~:text=As%20on%20March%2031%2C%202022%2C%20the%20total%20number,and%20female%20c
omposition%20is%20682%20and%20298%20respectively.
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Thus, there should be more hiring in the workforce to better manage the tasks at hand and deploy
the tools more efficiently in order to investigate.
There is also a need for SEBI to be provided with more technologically - advanced method of
investigation and surveillance tools that includes the likes of wire/ phone tapping, which are in
the weaponry of foreign Regulatory bodies and make their task easier. This should not be blindly
given to them and a procedure should be established which will determine when SEBI has the
authority to access such tools as otherwise it would lead to breach of privacy. For instance, for
any act of wire tapping, there can be a procedure that requires a warrant that would need to be
signed by Judge.
In respect of punishments, the Courts can take a stricter route and award significant penalties and
also imprisonment. It has been observed the Courts are content after imposing civil penalties on
the offenders and they do not get convicted which diminishes the sense of fear in the minds of
offenders as they are aware that they will not be put in jail. A stricter approach will create a sense
of fear in the minds of any potential offenders and they might abstain from committing insider
trading. Since the approach of Courts at time of assessing the evidence is more like a criminal
court then the punishment also given should be in that manner.
Also, there is no extraterritorial application of the Insider Trading laws in India, so if any foreign
national commits an offence in India, SEBI lacks jurisdiction to impose charges on him/her
which is not the case in countries like US where they have the clause for extraterritorial
application in their laws. There might have been few instances of investigations in other
countries through some agreements and treaties.
The powers of SEBI are after the commission of Insider Trading and not before the commission
for the offence, which means if some whistleblower provides a tip of potential Insider Trading,
SEBI doesn’t have the power to take actions. This is also an area of concern as SEBI needs to
stay ahead of the curve to prevent insider trading. SEBI needs to have some precautionary
provisions that will allow them to prevent acts of insider trading before they are committed.
There is no provision that allows a class action against the act of insider trading and SEBI takes
charge of the accusation and investigates in order to determine whether an offence has been
committed or not. A private person is also disabled from filing a private suit. In response to this
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there must be civil remedies for private person suits or class action suits to deter the occurrence
of insider trading.
SEBI must also establish a timeline within which the investigation is to be completed and a
special procedure for such investigation must be crafted so that more reliable form of evidence
can be gathered by SEBI in its pursuit to successfully charge the offender.
Lastly, it might be possible that SEBI being powered with legislative, executive and judicial
functions has been unable to cope up with the responsibilities and falling short on the
expectations that is anticipated from them. For example, SEC only has the role of detecting,
investigating and presenting the occurrence of Insider Trading in the Court which helps in
reducing the burden on them. It might be time to streamline their roles and responsibilities to
better realize their objectives.
Prevention of insider trading requires a multifaceted approach that includes regulatory measures,
education and training, transparency in the market, and whistleblower protection. While it is
impossible to completely eradicate insider trading, implementing these measures can go a long
way towards reducing its prevalence and minimizing its negative impact on the economy. As
such, it is important for governments, regulatory bodies, and market participants to work together
to implement effective measures to prevent insider trading and ensure that markets remain fair,
transparent, and equitable for all investors.
6.5 FINAL REMARKS
Insider trading is considered as an illegal method to enjoy financial benefits and widely treated
as an unethical practice. It has received wide attention whenever any instance is reported as it
concerns the public since they invest their hard earned money in the securities of these
companies, and occurrence of such instance leads to decay of trust in the security market from
the perspective of investors. It is not only an issue that concerns the individual(s) involved but
the whole of security market, as well as the economic functioning of the country.
The occurrence of Insider Trading in any financial market indicates presence of many ethical
reasons like issue of conflict of rights, different cultural norms, and inequalities amongst market
participants. Typically, it is considered wrongful because it creates a circumstance where all
Page 99 of 104

participants do not have an equal opportunity to trade based on the information, and some reap
monetary gain/ avoid losses due to having this information. This creates a sense of powerlessness
in the minds of investors who are not privy to this information and as a result suffer financially.
There has been some dispute regarding the issue of conflict of rights, as the clash of rights of
insiders versus common investors. It has been argued that Insider Trading makes the market a
playground for the insiders i.e. they are at an advantageous position as compared to common
investors and due to their actions; consequences are faced by the disadvantaged party who are
helpless in tackling the situation.
With the scale of securities market growing in size with each passing year, more investors are
putting their money in shares of various companies and creating a stage where lot of capital has
been invested. Hence, there should be safeguards for common folks to feel protected against such
actions of insiders that might cause them financial harm and damage their confidence in the
security market and thus the responsibility on SEBI is massive.
Developments in technology, information flow and access have led to new ways in which market
manipulation occurs. In response, jurisprudence has also evolved in the prevention of insider
trading laws along with the methods used for detecting, investigating and carrying out
enforcement against insider trading. The jurisprudence of insider trading in India has taken its
own course over the past three decades and has drawn reference from several overseas
jurisdictions.
It is highly unlikely that insider trading is to ever be fully eliminated, thus a combination of legal
reforms, technological advancements, and cultural shifts may progress the efficiency of insider
trading regime in order to reduce its occurrence and protect the investors as well as the securities
market. Overall, improving insider trading laws in India will require a multifaceted approach
involving the government, regulators, and market participants. By taking steps to strengthen
enforcement mechanisms, increase penalties, and educate investors, India can create a more
transparent and fair securities market.
LIST OF REFERENCES/ BIBLIOGRAPHY
Page 100 of 104

ARTICLES
 Anand Thapai, “History & Evolution of Stock Exchanges in India”, Academia, at 12-14,
available at - (PDF) Chapter II History & Evolution of Stock Exchanges in India | Anand
Thapai - Academia.edu.
 Arjun Singh, “Insider Trading: Comparative Analysis of India and USA”, SSRN, 2015,
available at - https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2552418.
 Chandra B Lekha, “Can Countries Justify the Existence of Insider Trading Laws? An Indian
Perspective”, SSRN, 2021, available at -
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3849367.
 David T. Cohen, “Old Rule, New Theory: Revising the Personal Benefit - Requirement for
Tipper/Tippee Liability under the Misappropriation Theory of Insider Trading”, Insider
Trading: Regulatory Perspective, ICFAI University Press, 2007.
 Dr. Alexandre Padilla, “Can Regulation of Insider Trading Be Effective?”, Insider Trading:
Regulatory Perspective, ICFAI University Press, 2007.
 Dr. Georgios I. Zekos, “Is the Law Effective in Protecting Markets from Insider Trading?”,
Insider Trading : Regulatory Perspective, ICFAI University Press, 2007.
 Jeffrey F. Jaffe, “Special Information and Insider Trading”, The University of Chicago Press,
The Journal of Business Vol. 47, No. 3 (Jul., 1974), pp. 410-428.
 John Kay & Mervyn King, “Insider Trading”, Journal of Economic Policy, Vol. 3, No. 6 (Apr.,
1988), pp. 163-193.
 Juliette Overland, “The Future of Insider Trading in Australia: What did Rene Rivkin Teach
Us?”, Insider Trading: Regulatory Perspective, ICFAI University Press, 2007.
 Kamshad Mohsin, “Insider Trading in India in Comparison With USA”, SSRN, 2020,
available at - DOI: 10.2139/ssrn.3687905.
 Karen E. Woody, “The New Insider Trading”, Arizona State Law Jounral, available at -
delivery.php (ssrn.com).
 L.P Anitha, “Critical Analysis on Laws relating to Insider Trading”, Shodganga, Chapter 3,
at 137, December 2010, available at http://hdl.handle.net/10603/13173.
Page 101 of 104

 Manan Lahoty and Abhiroop Lahiri, “Whats-Upsi? Key Themes From Sebi's Recent Orders
on Insider Trading”, available at -WHATS-UPSI? Key Themes From SEBI'S Recent Orders
On Insider Trading - Securities - India (mondaq.com)
 Marc I. Steinberg, “Insider Trading - A Comparative Perspective”, Insider Trading:
 Pradeep Raje, “Estimates of Insider Trading in India”, SSRN, 2008, available at -
 Pranav Sarasvat, “Elements of Effective Insider Trading Regulations: A Comparative
Analysis of India and U.S.A”, Nirma University Law Journal: Volume-10, Issue-1, December
2020.
 Prateek Bhattacharya, “India's Insider Trading Regime: How Connected are You?”, NYU
Journal of Law & Business, Fall 2019, Vol. 16, Issue 1.
 Robert W. McGee and Walter E. Block, “An Ethical Look at Insider Trading”, Insider
Trading: Regulatory Perspective, ICFAI University Press, 2007.
 Roopanshi Sachar & Dr. Afzal Wani, “Regulation of insider trading in India: Dissecting the
difficulties and solutions ahead”, Journal on Contemporary issues of law, Vol 2, Issue 11.
 Sandeep Parekh, “Prevention of Insider Trading & Corporate Good Governanc”, Indian
Institute of Management, Ahmedabad Working Paper No. 2003-01-03, 2005.
 Shradha Rajgiri, “An Analysis of Insider Trading in India”, Pramana Research Journal
Volume 9, Issue 3, at 2, ISSN No - 2249-2976, 2019, available at
https://www.pramanaresearch.org/gallery/prj-p565.pdf.
 Smriti Chand, “History of Stock Exchange in India”, available at -
https://www.yourarticlelibrary.com/stock-exchange/history-of-stock-exchange-in-
india/23488.
 Tibor R. Machan, “The Case for the Morality of Insider Trading”, Insider Trading:
 Udit Grover, “Insider Trading: A Modern Crime or Not?”, SSRN, 2014, available at -
BOOKS
 Anil Chaudhary & Rajneesh Deka, Securities Regulation, Walters Kluwer Business, 2015.
 Amit Vohra, Securities Law and Capital Market, Bharat Publications, 2022.
Page 102 of 104

 Alastair Hudson, Securities Law, November 2013, Sweet & Maxwell, 2nd edition.
 Bhuwneshwar Mishra, Law Relating to Insider Trading: A Comprehensive Commentary on
SEBI (Prohibition of Insider Trading) Regulations 2015, Taxmann Publications, 1 st Edition,
2015.
 Corporate and white collar crime, cases and materials, aspen publishers, 4th edition, Wolters
Kluwer Law and business.
 Eilis Ferran, Company Law and Corporate Finance, Oxford University Press, 1999.
 Eshwar Sabapathy, Case Digest on Insider Trading, Bloomsbury Publication, 2022.
 G.K. Kapoor and Sanjay Dhamija, Company Law and Practice, 26th edition, September,
2022.
 Gopalaswamy, Inside Capital Market, ICFAI, Hyderabad (2009).
 Kaushik Laik, Unfair Trade Practices in Securities Market, Taxmann Publications, 1 st
Edition, 2013.
 Kondaiah Jonnalagadda, Securities Law, Lexis Nexis Publications, 1 st Edition, 2015.
 K. R Chandratare, Law relating to Insider Trading, Bharat Law Agency, 5th Edition, 2022.
 Machiraju, The Working of Stock Exchanges in India, Taxmann third edition-2009.
 N.S Zad, Securities Laws & Capital Markets, Taxmann Publications, 3rd Editon, 2022.
 Robert G. Vaughn, Whistlerblower Law, Edward Elgar Publications, Vol 1, 2015.
 Robin Joseph Baby & Sumit Agarwal, SEBI Act: A Legal Commentary, Taxmann
Publications, 1st Edition, 2011.
 Sandep Parekh, Fraud, Manipulation and Insider Trading in the Indian Securities Markets,
CHH Publications, 2019.
 S. Ramanujan, Mergers et al: Issues, Implications, and Case Law in Corporate
Restructuring, Lexix Nexix, 3rd Edition, 2020.
 Shailashri Bhaskar, Prohibition of Insider Trading, Oak Bridge Publications, 2019.
 Vinod Kotahri, Securitisation, asset reconstruction and enforcement of Security Interest. 6th
Edition October, 2020. Lexis Nexis.
ACTS/LEGISLATIONS
 Bombay Securities Contract Act, 1925.

 Capital Issues Control Act, 1947.
Page 103 of 104

 Companies Act, 2013
 Companies Amendment Act, 2017.
 Defence of India Act, 1939.
 SEBI Act, 1992.
 SEBI (Prevention of Fraudulent and Unfair Trade Practices) Regulations, 2003.
 SEBI (Prohibition of Insider Trading) Regulations, 1992.
 SEBI (Prohibition of Insider Trading) Regulations, 2015.
 Securities Contract (Regulation) Act, 1956.
Page 104 of 104

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INSIDER TRADING IN INDIA: A STUDY OF THE

EMERGING ISSUES OF INSIDER TRADING WITH

DISSERTATION SUBMITTED IN PARTIAL FULFILLMENT OF THE

MASTER OF LAWS (LL.M.)

Electronic copy available at: https://ssrn.com/abstract=4700517

Date: Name & Signature of the Student

Electronic copy available at: https://ssrn.com/abstract=4700517

Hidayatullah National Law University

HIDAYATULLAH NATIONAL LAW UNIVERSITY;

AND WHEREAS, AKSHAT MALL has been permitted to write a Dissertation on

‘INSIDER TRADING IN INDIA: A STUDY OF THE EMERGING ISSUES OF INSIDER

TRADING WITH REFERENCE TO SECURITIES LAWS’ for LL.M. Examination of the

YEAR 2022 – 2023 of the HIDAYATULLAH NATIONAL LAW UNIVERSITY;

being forwarded to the CONTROLLER OF EXAMINATION, HIDAYATULLAH

NATIONAL LAW UNIVERSITY for necessary action.

Name and Designation

Page III of XII

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CHAPTER I - INTRODUCTION TO INSIDER TRADING……………………………………1

1.1 RESEARCH PROBLEM…………………………..………………………………….4

CHAPTER II - CONCEPT, HISTORY & EVOLUTION OF INSIDER TRADING IN

2.1 HOW DID IT START?………………………………………………………………21

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CHAPTER III - LEGAL FRAMEWORK FOR INSIDER TRADING IN INDIA……………35

3.1 COMPANIES ACT 2013……………………………………………………………36

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CHAPTER IV - JUDICIAL PRONOUNCEMENTS RELATED TO INSIDER

4.1 MAJOR FINDINGS IN THE LANDMARK JUDGMENTS……………………….54

CHAPTER V - EMERGING ISSUES OF INSIDER TRADING……………………………...67

5.1 EVOLVING STANDARDS OF PROOF……………………………………………68

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CHAPTER VI – CONCLUSION & SUGGESTIONS…………………………………………90

6.1 SEBI’S NOT UPTO THE MARK APPROACH……………………………………90

LIST OF REFERENCES/ BIBLIOGRAPHY……………………………………….…………101

Page VII of XII

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Page VIII of XII

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Page XII of XII

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INTRODUCTION TO INSIDER TRADING

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Additionally, insider trading can lead to a misallocation of resources, as capital flows to

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1.2 SIGNIFICANCE OF RESEARCH

Research on insider trading is significant for several reasons.

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1.4 RESEARCH OBJECTIVES

The main objectives are –

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The main questions are –

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A. Books & Commentaries

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