February 26, 2018by Ms. Mohini Varshenya0

Any information relating to a listed entity which if comes in the market can have a significant effect on its security prices, is treated as unpublished price sensitive information (UPSI). Any person who deals in the securities of any company on the basis of UPSI and makes personal gain by adversely affecting the interest of the general public is guilty of Insider trading. As per the SEBI (Prohibition of Insider Trading) Regulations, 2015, price sensitive information includes:

  • financial results;
  • dividends;
  • change in capital structure;
  • mergers, de-mergers, acquisitions, delisting, disposals and expansion of business and such other transactions;
  • changes in key managerial personnel; and
  • material events in accordance with the listing agreement

It is to be noted that possession of UPSI is not an offence but dealing in the securities of the Company on the basis of such UPSI, is.

SEBI also in its SEBI (Prohibition of Insider Trading) Regulations, 2015, has placed restriction on communication on every person who has such UPSI to any other person until and unless such communication is for legitimate purpose, performance of duties or discharge of legal obligations. Similar restriction is also placed on procurement of such information by any person from Insider. Basically, intent of SEBI has always been to prevent misuse of any unpublished price sensitive information by any person for the purpose of making unlawful gain.

Company has to make sure that any information which, if comes in market, may have material effect on the price of securities in the market, must be disseminated by the company to the stock exchanges in a prompt and fair manner. SEBI, on march 28th, 2014, in the matter of MAN Industries (India) Limited, imposed a penalty of Rs. 25,00,000 on the Company and its officials, for the alleged delay in the disclosure of price sensitive information relating to bagging of an order worth Rs. 1340 crore to the stock exchange.

SEBI has always been vigilant in curbing the practice of Insider Trading and in the year 2015 replaced the erstwhile SEBI (Prohibition of Insider Trading), Regulations, 1992 with the new and far more stringent regulations called SEBI (Prohibition of Insider Trading) Regulations, 2015 signifying its zero tolerance approach towards Insider Trading. These regulations under its ambit cover all the employees or directors of the company.. Now it is intended that anyone in possession of or having access to unpublished price sensitive information will be considered as an “insider” regardless of how such person came in possession of the information. The definition of Insider under the current regulations has been widened enough to cover any person whether connected or not, to the company but has or deemed to have access to the unpublished price sensitive information.

In December 2017,SEBI issued directions to AXIS Bankto conduct an internal enquiry and submit report to SEBI within 3 months for alleged leakage of its financial results for the quarter ending June 30,2017 in WhatsApp chat groups. The information related to its quarterly financial results was being circulated in the WhatsAppgroup much before the time it came in public. The proximity of the figures being circulated in the WhatsApp group and the actual figures was a clear indication that such information was being leaked by a person who had access to the unpublished price sensitive information relating to the quarterly financial results of the company. Therefore, it is pertinent to note that if anyone due to his connection with the company or in thecourse of his employment or due to any other reason, has any price sensitive information in his possession or is deemed to have possession of such information, is under an legal obligation, to not, in any way, communicate such information to any other person until it is for any legitimate purpose.

On February 4th, 2016, SEBI in the matter of Palred Technologies Limited, ordered impounding of unlawful gains of over Rs.2 crore from 15 individualswho were allegedly ‘connected entities’ and had traded in the shares of Palred Technologies Ltd (PTL) while possessing price-sensitive information. SEBI also for the very first time in this case held person connected through mutual friend on Facebook as ‘connected persons’.

On March 11, 1998, an order was passed by SEBI in the matter of Hindustan Lever Limited v. SEBI. HLL announced that it was merging with Brooke Bond Lipton Limited (BBLL) and before merger HLL purchased eight lakh shares of BBLL from Unit Trust of India (UTI). In its reply HLL stated that for insider trading it is essential to prove the misuse of fiduciary position and that the transaction was undertaken to make a gain, profit or to avoid a loss. These contentions were denied by SAT and this case was held to be that of insider dealing.

In November, 2017, an order was passed by SEBI in the matter of Bank of Rajasthan Limited against 7noticees who were found guilty of Insider Trading and communication of UPSI to other person and were collectively ordered to disgorge an amount of Rs.95,77,614 in favor of SEBI.

Bank of Rajasthan and ICICI bank ltd. were in negotiation of merger and information w.r.t. negotiation was already in public domain since May 06, 2010.The Binding implementation agreement of merger got signed on May 18, 2010. One of the noticee who was also the brother of the promoter’s wife purchased shares of the Company during the period from May 17, 2010 to May 18, 2010 and subsequently sold the shares within 8 to 10 days, thereby making illegal gain of Rs. 95,77,614. It was contended by noticee that there was no documentary evidence in the show cause notice that he was in possession of UPSI and the news of merger was already out in the market on May 6, 2010.

It was also contended that he was neither an insider as per the definition of insider nor he was covered in the definition of connected person. A.O. held that combined reading of definition “unpublished” and “Price sensitive information” makes it clear that if the news/information regarding the merger of BOR and ICICI in newspapers/reports are not published by either of the two parties to the merger or their agents, then the same cannot be treated as published. It was further held that the noticee was not covered in the definition of “relative” as per Companies Act, 1956 but is covered in the definition of “insider” since he had access to UPSI.As per the trading pattern of the noticee, it was observed that he was not an active investor in the equity market.


Developments in Capital markets in the last few years depict that any form of malpractice which adversely affects the faith of bonafide investors in the market will not tolerated by the Market Regulator, SEBI. It’s high time that companies should draw attention towards the trading done by their promoters or employees or any person who is related with the company in its securities and must ensure that such trading is not in any way in violation of any the prevailing SEBI Laws. Companies must adopt appropriate measures that whosoever has or is deemed to have any unpublished price sensitive information shall not communicate such information until it is for any legitimate purpose. To effectively curb insider trading, companies should conduct knowledge seminars or awareness sessions for their Promoters, Directors and employees to make them aware of insider trading and its repercussions. They should also be made aware of the monetary penalties which could be imposed on being found guilty of Insider Trading. Companies should follow and maintain strict procedures and controls to adhere to the applicable laws and to maintain the confidentiality of any price sensitive information.

Fairness is not an attitude. It’s a professional skill that must be developed and exercised

-Brit Hume

Disclaimer: –

The entire contents of this document have been developed on the basis of relevant statutory provisions and the information available at the time of the preparation. Though the author has made utmost efforts to provide authentic information however, assumes no responsibility for any errors which despite all precautions, may be found herein. The material contained in this document does not constitute/substitute professional advice that may be required before acting on any matter. The author and the company expressly disclaim all and any liability to any person who has read this document, or otherwise, in respect of anything, and of consequences of anything done, or omitted to be done by any such person in reliance upon the contents of this document.

Ms. Mohini Varshenya

Ms. Mohini Varshenya

Partner & Head-ESOP Services

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