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AMITY LAW SCHOOL, AMITY UNIVERSITY RAJASTHAN, JAIPUR
INSIDER TRADING REGULATIONS & INTERNATIONAL

PERSPECTIVE
A Dissertation submitted to in Partial fulfilment for the Award of degree of

B.A.LL.B (H)
Submitted by:
KUMAR DEVBRAT
Enrollment No. - A21511112044
Under the Guidance and Supervision of
Ms Mona Mahecha (Assistant Professor)
April 2017
1
CERTIFICATE
This is to certify that Mr. Kumar Devbrat, Enrollment No. A21511112044 has
submitted his Dissertation titled, “INSIDER TRADING REGULATIONS &
INTERNATIONAL PERSPECTIVE” in partial fulfilment of the requirement for the
award of Degree of Bachelor of Laws for academic year of 2012-2017 of, AMITY LAW
SCHOOL, AMITY UNIVERSITY RAJASTHAN, under my guidance and supervision.
It is also affirmed that, the dissertation submitted by him is original, bona- fide and
genuine research done by him.
DATE: 10/03/2017 Miss Mona Mahecha

(Assistant Professor)
Amity law School,
Amity University Rajasthan
Jaipur, Rajasthan
2
ACKNOWLEDGEMENT
The success and accomplishment of this research work stems from efforts and dedication
offered. I thank all the faculties of ALS for their extreme devotion and in making my
education successful.
I also acknowledge the Amity University Rajasthan particularly the Faculty of Law for the
quality training accorded to me for the past five years. The efforts of both academic and
non-academic staff in organisation and implementation of the faculty agenda are much
appreciated. I acknowledge the support and guidance that was offered by The Director of
Amity Law School Rear Admiral Harindar Gupta.
Special thanks goes to Ms Mona Mahecha, the Supervisor of this research work for her
wise and kind guidance. His genuine cooperation, encouragement and simplicity enabled
me to accomplish my work in a calm and convenient environment. I wish to thank her
sincerely for her precious availability. Her assistance and advices have been particularly
helpful.
With much regard, I thank my entire AMITY LAW SCHOOL Faculty for their endless
support. Particular thanks also go to my colleagues and friends at AMITY UNIVERSITY
RAJASTHAN for being so friendly and supportive during this period. Above all, I owe
much tribute to the Almighty God who gave me a life worthy living and I thank Him for
giving me the strength to accomplish this dissertation.
KUMAR DEVBRAT
B.A.LL.B -X Sem
3
TABLE OF CONTENTS
I. List of Abbreviations ……………………………………………........ 7-8

II. List of Cases …………………………………………………………... 9-10
III. Literature Review……………………………………………………... 11-13
IV. Objective of Study……………………………………………………... 14
V. Statement of Problem………………………………………………..... 15
VI. Hypothesis…………………………………………………….……....... 16
VII. Research Methodology……………………………................................ 17
VIII. Research Design………………………………………………..…......... 18
IX. Research Questions…………………………………………………….. 19
X. Chapter 1 – 6
CHAPTER -1
1) Introduction 20
1.1 Meaning of Insider Trading 22
1.2 Types of Insider Trading 27
1.3 Causes of Insider Trading 29
1.4 Rationale for Insider Trading 31
1.5 Evolution of Law Relating to Insider Trading 32
CHAPTER – 2
2) Legislative And Regulatory Regime Indian Prespective 37

2.1 Legislative Regime for Insider Trading 38
2.2 Regulation of insider Trading 47
2.3 Penalties for Insider Trading 52
4
CHAPTER – 3
3) SEBI (PIT) Regulations, 2015 58

3.1 SEBI (PIT regulations – 2015) 58
3.2 Disclosure Requirement 66
3.3 Implications for M & A transactions 72
3.4 Investigative powers of SEBI 75
3.5 Probable Defense 77
3.6 Rights of Affected parties 86
a. Appeal process
b. Standard of proof required
c. Applicability of principal of natural justice
d. Benefit of doubt
CHAPTER – 4
4) International Scenario 90
4.1 Jurisprudential underpinnings – evolution 90
4.2 Dissecting the lacuna in Insider Trading 91
a. Introduction
b. Mens rea – a critical facet : 92
i. US
ii. UK
iii. INDIA
c. UPSI – discrepancies in characterization 96
i. UK
ii. USA
iii. INDIA
4.3 Historical development 104
4.4 Comparative analysis 105
a. India & US
b. India & UK
5
CHAPTER – 5
5) Judicial Pronouncements 117
CHAPTER -6
6.1 Conclusion 150

6.2 Suggestion/ Recommendations 151
a. Prevention of ITR and good corporate governance
b. Other recommendation
c. Some good practices to deal with IT
6.3 Precautions 163
XI. Bibliography .................................................................................... 165
6
LIST OF ABBREVIATIONS
BOD- Board of Directors
CDR Corporate Debt Restructuring
C.F.R Code of Federal Regulations
CJA Criminal Justice Act
C.M.B Capital Market Bulletin
C.L. Cornell Law Review
CPC Code of Civil Procedure, 1908
CompL.J Company Law Journal
FUTP Fraudulent and Unfair Trade Practices
FSA UK Financial Services Authority
FSMA Financial Services and Markets Act 2000
IOSCO International Organization of Securities Commission
ICDR Issue of Capital and Disclosure Requirements
IPO Initial Public Offer
JCE Journal of Corporate Executive
MAD Market Abuse Directive
7
N.Y.LJ New York Law Journal
PIT Prohibition of Insider Trading
PSI Price sensitive information
SAT Securities Appellate Tribunal
SEBI Securities and Exchange Board of India
SEC Securities Exchange Commission
SRO Self-Regulatory Organisations
U.S.C United States Codes
UPSI Unpublished price sensitive information
U.S.R Unites States Reporter
8
LIST OF CASES
 Abhijit Mahajan v. Infrastructure projects limited
 Chandrakala v. SEBI
 In re Cady, Roberts & Co
 Dilip S Pendse vs. SEBI
 Dirks v. SEC
 Gujarat NRE Mineral Resources Ltd. v. SEBI
 Harish K. vaid v. SEBI
 Hindustan Lever Ltd v. SEBI
 KLG Capital services limited v. SEBI
 Polaris Software lab limited v. SEBI
 Palred Technologies Limited v. SEBI
 Rakesh Agarwal v. SEBI
 Reliance Industries Limited vs. Securities and Exchange Board of India
 Samir Arora v SEBI
9
 Strong v. Repide
 SEC v. Rajat Gupta and RajRatnam
 SEC v. Texas Gulf Sulphur Coa
 Securities Exchange Commission v. Raj Rajaratnam
 Securities Exchange Commision v. Texas Gulf Sulphur Company
 Securities Exchange Commission v. Investors Management Company
 Securities Exchange Commission v. Land
 US v. Carpenter
 U.S. v. Chiarella
 United States v. O’Hagan
 V.K. Kaul v. The Adjudicating Officer, SEBI
 Wipro finance ltd v SEBI
10
LITERATURE REVIEW
The study is based on review of the paper of different researchers on ethics and insider trading.
The report of SEBI and its regulations for insider trading are also studied for the paper and on
the basis of all these secondary information study on the ethical issues and insider trading is
done.
A. “ Merger Announcements and Insider Trading Activity in India: An Empirical

Investigation (2006) by Manish Agarwal and Harminder Singh “ :
The key objective of the research was to investigate if insider trading activities could
be observed prior to M&A announcements in India. The analysis was based on a
sample of 42 companies during the period 1996-99. It examined the trends in the
pattern of stock price movement and trading volume. The abnormal returns were
measured using a modified market model. The study found evidence for the presence of
insider trading activities in companies belonging to the same business group. It
recommended investigation on six companies for the existence of insider trading. Eight
companies did not exhibit evidence of insider trading activity. All the remaining
companies were placed in the uncertain category where further investigation was
required.
B. “ Market Imperfections and Regulatory Intervention: The Case of Insider Trading

Regulation in the Indian Stock Market (2012) by Yogesh Chauhan, Kiran Kumar Kotha
and Vijaya B. Marisetty “:
The key objective of this research was to ascertain the impact of regulatory action (a) on
insider trading profits and information content of disclosures and (b) its variability across
firms with different organizational structure. The study analyzed nearly 22,571 insider
trades that occurred during 2007-11. The abnormal returns were measured using the Fama-
French Model. The effectiveness of the regulatory intervention was measured using
multiple regression. It concluded that (a) regulatory intervention reduced profiteering
11
activities (b) regulatory intervention significantly improved production of information and
(c) regulatory intervention was predominantly felt among standalone firms.
C. “ DR. Md. Abdul Jalil, Ferdous Azam and Muhammad Khalilur Ramman;
“Implementation mechanism of Ethics in Business Organizations” , International
Business Research , Vol. 3, No. 4; October 2010 “
According to Jalil, M.A “With strong ethical enforcement, companies can build long term
profitable relationships with their stakeholders. On the other hand, a good number of cases
of unethical practices are being reported each year all over the world. The reason might be
the wrong implementation and communication of ethical standards.”
D. “ Phillip Anthony O‟Hara; “Insider trading in financial markets: legality, ethics,

efficiency”, International Journal of Social Economics, Vol. 28 No. 10/11/12, 2001, pp.
1046-1062. # MCB University Press, 0306-8293 “
O’Hara, P.A states that becoming an insider or a professional trader is a skill like being a
plumber, and outlawing insider trading effectively would give more power to professional
traders than the average ``ill informed‟‟ everyday trader. Similarly, there is no real
evidence that having insider trading legalized has ever contributed to a significant degree of
lack of confidence which has led to instability in the markets.
It is not possible to completely remove unethical practices. But it can be minimized
through continuous reminders. In the present business atmosphere, there are some
organizations that are ethical and in some organizations ethics are not practiced as
rationally expected. Despite this type of mixed attitude towards business ethics, it can be
said that ethical trend will change an organisation’s internal and external reputation.
12
ITR FROM ACROSS THE WORLD
E. The Financial Markets Abuse Act (1988) in Japan is considered lenient in comparison with
the US and the UK. While IT is not a strict offense, only wilful misconduct is considered a
severe breach of ITR. The law does not explicitly prohibit corporate insider from tipping, it
would be deemed criminal only if traded by the tippee1
F. William Schwert (1996)2 believes that ITR has only led to a change in trading pattern of
insiders. As insiders are quite aware of the enforcement mechanisms, they tend to trade
over a prolonged period, in smaller volumes, over multiple accounts with multiple brokers,
a trend named ‘stealth trading.’ Arshadi and Eyssell (1993) assert that insiders now trade
less around corporate events so as to not attract unwarranted attention. However, they
believe that insiders still continue to earn abnormal returns. Seyhun (1992), on the contrary,
believes that registered insiders have reduced trading overall, while ‘outside-insiders’ (akin
to constructive insiders in the law, like lawyers and accountants) continue to trade despite
the regulation.
G. Right insiders to target Seyhun (1986)3 highlighted that insiders such as the chairman and
directors, who are well aware of the overall affairs of the business, are most likely to
benefit the most from insider trading and that their trading activities should be strictly
regulated. Bettis et al (1998) are in favor of extending the disclosure requirements to
nominal insiders such as lawyers and consultants as well.
1
A Global comparison of Insider Trading Regulations – James H. Thompson (2013)
2
William Schwert, G., 1996, 'Markup Pricing in Mergers and Acquisitions ', Journal of Financial Economics 41, pp.
153- 192.
3
Nejat Seyhun, H., 1986, 'Insiders’ Profits, Costs Of Trading, and Market Efficiency', Journal of Financial
Economics 16, pp. 189-212.
13
OBJECTIVE OF STUDY
1. To understand the concept, meaning, drawbacks of Insider trading in today’s time.
2. To extensively analyze the proposed law on Insider trading under Prohibition of Insider
trading regulation,2015.
3. To analyze the merits and demerits of Insider trading.
4. To assess and know support systems required for the effective implementation of ITR.
5. To study the Insider trading regulation with respect to various case laws.
The key theme of this paper is to endorse the concept of Insider trading regulation and
contemplating appropriate policy recommendations.
14
STATEMENT OF PROBLEM
The basic problem identified by the researcher in this paper is that in today’s day business
is expanding in the global markets and with it there is considerable amount of growth in
the financial markets- Bond market, share market, derivative market and other markets.
And with the increase in such trading, there has been a development in one particular form
of trading - Insider Trading. Insider trading is trading in stock market while having a
potential access to private, non-public information of a company. The new Insider Trading
Regulations, 2015 has brought about several changes to be at par with international
standards of Insider Trading Laws.
However the problem has not been eradicated completely and finding out solution and
suggestion is the main objective of the study.
15
HYPOTHESIS
The research topic deals with the concept of Insider trading regulations and a comparative
analysis of Indian regulations with respect to other countries clarifying the drawbacks and
loopholes which is still in existence and recommendation for the same. The researcher
would like to highlight the role and duties of the compliance officer in setting forth
policies, procedures in monitoring adherence to the rules for the preservation of sensitive
information and implementation of code of conduct. Also brief comparison has been made
in respect to 1992 and 2015 regulations. After that the researcher would like to articulate
the insider trading with respect to judicial pronouncements and along with that the
analysis of eradicating the wholesome problem of Insider Trading.
16
RESEARCH METHODOLOGY
The research is done with the help of secondary data. Data is mainly collected from books,
case laws, websites etc. This Research Paper is based mainly and heavily on written text
material and also on various web sources. The segments are structured and written
actively. The writing style is descriptive as well as analytical. This Research paper has
been done after a thorough research based upon intrinsic and extrinsic aspects of the topic.
17
RESEARCH DESIGN
This research work has been prepared in the form of chapters. There are total No. of 6
chapters in the research work. The introduction to the research work precedes the first
chapter which provides a brief introduction of the research work. The First Chapter
provides Introduction of the research topic and its evolution meaning and types of Insider
Trading. The Second Chapter provides legislative and regulatory regime of Sebi related
to Insider trading along with its penalty provisions. The Third Chapter covers
Prohibition of Insider Trading regulation with respect to 2015 regulations, impact of IT in
merger and acquisition, defense and rights available to affected parties. The Fourth
Chapters covers IT regulation with respect to International scenario and lacuna’s along
with its comparison. Fifth Chapter covers judicial pronouncements in relation to Insider
Trading. Sixth Chapter covers finally the conclusion , precautions and suggestions /
recommendations to curb Insider Trading.
18
RESEARCH QUESTIONS
The Research study explores itself to address:
1.What is Insider Trading , its meaning and Historical background in Indian aspect?
2.What is the main cause of Insider trading and what are its types?
3.What is the legislative and regulatory regime governing Insider trading?
4.What is the Disclosure requirement and investigative powers as per SEBI?
5.What is the implication of insider trading on M & A transaction?
6.What are the probable defense and rights available to affected parties?
7.What is Insider trading regulation in aspect to International scenario?
8.What is insider trading in the context of Companies Act 2013?
9.What role does SEBI play in curbing insider trading and its penalty provisions?
19
CHAPTER - 1
INTRODUCTION
“There is no other kind of trading in India, but the insider variety” remarked a former president
of the Bombay Stock Exchange in 1992. Insider trading has utterly no place in any fair-minded
law-abiding economy – stated the then Securities Exchange Commission (“SEC”) Chairman Mr.
Arthur Levitt in 1998. Between these two extreme quotes lies the entire debate on insider trading
In simple terms, insider trading is the act of trading, directly or indirectly, in the securities of a
publicly listed company by any person, who may or may not be managing the affairs of such
company, based on certain information, not available to the public at large, that can influence the
market price of the securities of such company. An insider, who has access to critical price
sensitive information with respect to a given company, may tend to use such information to his
economic advantage, severely impairing the interests of a public shareholder who is not privy to
such information.
The United States of America was the first country to formally enact a legislation to regulate
insider trading4. This decision of the US Congress had surprised many around the world
especially because in certain other parts of the world, access to inside information and its use for
personal benefits were regarded as perks of office and the benefits of having reached a high stage
in life. Imbibing this sentiment, the restriction on insider trading was mocked as ‘the crime of
being something in the city’ by the Sunday Times of UK in 1973 5. However, over the years,
most of the jurisdictions around the world have recognized the requirement to restrict insider
trading in one form or the other and have accordingly put in place legal restrictions to this effect.
The discussion on insider trading invariably boils down to a conflict between ‘fairness’ and
‘efficiency’. It certainly is unfair to permit trading of listed securities when individuals are
differently informed on the affairs of a company. When insiders use price sensitive privileged
information to reap profits or to avert losses, the other investors or shareholders may suffer
4
Securities and Exchange Act, 1934
5
http://expressindia.indianexpress.com/fe/daily/20000821/fco21044.html (Last Visited on March 20,2015)
20
severe economic disadvantage. Like the US, most of the countries have put in place regulatory
measures in one form or the other to restrict insider trading.
India was not late in recognizing the detrimental impact that insider trading can inflict upon the
rights of the public shareholders, corporate governance in India and the financial markets overall.
The first step towards regulation of insider trading in India was taken in 1948 by constituting a
committee under the chairmanship of Mr. P.J. Thomas to evaluate restrictions that can be
imposed on short swing profits. As on date, Securities and Exchange Board of India (“SEBI”),
the market watchdog regulates insider trading through the SEBI Act, 1992 (“SEBI Act”) and the
SEBI (Prohibition of Insider Trading) Regulations, 1992 (“Insider Trading Regulations”) issued
under the SEBI Act
While the legal regime including the enforcement mechanism relating to prevention of insider
trading is still evolving, cases like the recent conviction of corporate bigwigs like Mr. Rajat
Gupta and Mr. Raj Rajaratnam in the US prove that the prohibition on insider trading is not
merely a paper tiger.6
(I) MEANING OF INSIDER TRADING
“Insider trading” is a term subject to many definitions and connotations and it encompasses both
legal and prohibited activity. Insider trading takes place legally every day, when corporate
insiders – officers, directors or employees – buy or sell stock in their own companies within the
confines of company policy and the regulations governing this trading.7
The distinction between legally permitted share trading by insiders and what is illegal needs to
be carefully understood. The presumption that an insider who is involved in the management or
affairs of a public company would have access to privileged information is but natural. However,
that cannot absolutely preclude insiders from acquiring or alienating any securities. Such a
blanket prohibition would not be reasonable and would be in violation of the legal rights of
insiders and would defy the logic of freely tradable securities. More importantly, such a
prohibition may not even be practically viable as it would be irrational to stop promoters of a
6
Insider Trading Regulations - A Primer Available at
www.nishithdesai.com/fileadmin/user_upload/pdfs/Research%20papers/Insider_Trading_RegulationAprimer.pdf
7
Mr. Thomas C. Newkirk, Associate Director, Division of Enforcement, SEC on September 19, 1998
http://www.sec.gov/news/ speech/speech archive/1998/spch221.html
21
company from dealing in their securities. This is exactly where a distinction is required to be
drawn between what is permitted and what is not.
The restriction is on corporate insiders directly or indirectly using the price sensitive information
that they hold to the exclusion of the other shareholders in arriving at trading decisions. There is
absolutely no restriction on insiders in trading in securities of the company if they do not hold
any price sensitive information that the public is not already aware of. Upon the price sensitive
information being disclosed to the market, the share prices would surge if the price sensitive
information is perceived to be positive and the share prices would plummet if the price sensitive
information is perceived to be negative. During that short while, between insiders receiving the
price sensitive information and then public disclosure of that information, insiders attempt to
deal in securities such that they can take advantage of the market reaction that is about to
follow.8
Any such transaction backed by non-public private information is misuse of the information that
they have and also the position that the insider holds in the company. The basis of public
participation and infusion of public funds in a company is the fiduciary duty that the
management and the promoters of the company owe to the public shareholders. US courts have
categorically mentioned that the insiders who receive UPSI by virtue of their connection with the
company and for corporate purposes only, such insiders owe a fiduciary duty (or a duty akin to a
fiduciary duty) to the company not to misuse or misappropriate such information for an unlawful
purpose i.e. to make secret profits or personal gains for themselves. The public shareholders rely
on the management and the promoters to adhere to highest standards of corporate governance in
managing the company and its affairs. Any abuse of position or power by the insiders for
personal benefits, monetary or otherwise, is a fraud on the public shareholders who legitimately
expect the management to run the company in the best interests of the public shareholders.
As discussed above, permitting few people to take advantage of Unpublished Price Sensitive
Information (“UPSI”) before it is disclosed to the others is a grave compromise on fairness and
equity. This will not only affect the performance of the company but also the integrity of the
financial market. Any market that is not fair in its dealings or cannot effectively control unfair
8
http://www.nishith.com/fileadmin/user_upload/pdfs/research%20papers/insider_trading_regulations A
primer.pdf (Last visited on March 22, 2015)
22
dealings in companies will not be an attractive investment destination for investors. Rampant
market manipulation and fluctuations will be frowned upon by the investors and will dry up the
inflow of investment into such markets.9
Making systematic gains from trading on the basis of material inside information, thereby
turning an informational advantage into a pecuniary gain, is also a violation of the proprietary
rights of the person owning such information. Information has value and can also generate value.
Insider trading can be illegal or legal depending on when the insider makes the trade: it is illegal
when the material information is still nonpublic--trading while having special knowledge is
unfair to other investors who don't have access to such knowledge. Illegal insider trading
therefore includes tipping others when you have any sort of nonpublic information. Directors are
not the only ones who have the potential to be convicted of insider trading. People such as
brokers and even family members can be guilty.
Insider trading is legal once the material information has been made public, at which time the
insider has no direct advantage over other investors. The SEC, however, still requires all insiders
to report all their transactions. So, as insiders have an insight into the workings of their company,
it may be wise for an investor to look at these reports to see how insiders are legally trading their
stock.10
Insider trading is the trading of a public company's stock or other securities (such as bonds or
stock options) by individuals with access to nonpublic information about the company. In
various countries, trading based on insider information is illegal. This is because it is seen as
unfair to other investors who do not have access to the information as the investor with insider
information could potentially make far larger profits that a typical investor could not make.
The authors of one study claim that illegal insider trading raises the cost of capital for securities
issuers, thus decreasing overall economic growth. However, some economists have argued that
insider trading should be allowed and could, in fact, benefit markets trading by specific insiders,
such as employees, is commonly permitted as long as it does not rely on material information not
in the public domain. However, most jurisdictions require such trading be reported so that these
9
Dr.Raj Mal Dungawat “Insider Trading :Legal Perspective with reference to India ‘ 12 M>D>U.L..j2(2007)
10
http://www.investopedia.com (Last Visited on March 24,2015)
23
can be monitored. In the United States and several other jurisdictions, trading conducted by
corporate officers, key employees, directors, or significant shareholders must be reported to the
regulator or publicly disclosed, usually within a few business days of the trade.
The rules around insider trading are complex and vary significantly from country to country and
enforcement is mixed. The definition of insider can be broad and may not only cover insiders
themselves but also any person related to them, such as brokers, associates and even family
members. Any person who becomes aware of non-public information and trades on that basis
may be guilty.11
Insider trading is the purchase or sale of a company’s securities affected by or on behalf of

person with knowledge of relevant but non-public material information ,regarding the company.
Insider trading occurs when a trade has been influenced by the privileged possession
of corporate information that has not yet been made public. Because the information is not
available to other investors, a person using such knowledge is trying to gain an unfair advantage
over the rest of the market.
Insider trading is defined under the explanation of clause (a) of sub-section 1 of section195 of
the companies act 2013:12
“ Insider trading”
(i) An act of subscribing, buying, selling, or 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
(ii) An act of counseling about procuring or communicating directly or indirectly any
non-public price sensitive information to any person.
11
http://www.en.wikipedia.org/wiki/insider_trading (Last Visited on March 24 ,2015)
12
The Companies act 2013, (18 of 2013)
24
‘Insider trading’ refers to transactions in a company’s securities. Such as stocks or options. By
corporate or their associates based on information originating within the firm that would, once
publicly disclosed, affect the prices of such securities. Corporate insiders are individuals whose
employment with the firm (as executives, directors, or sometimes rank-and-employees) or whose
privileged access to the firm’s internal affairs (as large shareholders, consultants, accountants,
lawyers, etc.) gives them valuable information.13
It means dealing in the securities of company., on the basis of confidential information relating
to the company, which is unknown to the public. This confidential information is used to make
profit or avoid in the transactions in the securities of the company. The following are the
characteristics of Insider Trading.
i) The insider possess the inside information which is not available to the public.
ii) Insider uses confidential information for his own benefit by either making gain or
avoiding loss.
iii) The information is used to the detriment of those persons who do not have that
information.
iv) Insiders also put shareholders to disadvantage.
Insider trading can be explained in most simple terms as, profit made by an insider using
confidential information’s which are unknown to the other investors. An insider is always who
has a close connection to the financial world. The mental element of an insider is significant
because he is in position to dictate or at least influence when the public disclosure of price
sensitive information is to be made. In that situation, the best interest of company may take
secondary place to his own interest.
In definitions of insiders, a distinction is usually drawn between two categories of insiders:

primary insiders and secondary ones. Such a distinction is justified for a number of reasons.
First, primary insiders get information from its source and have the necessary knowledge to
assess the materiality of the information. Secondly, they are expected to understand the
consequences of trading on confidential information. Hence, the sanctions imposed on primary
insiders are usually much harsher than those imposed on secondary ones.
13
http://www.econlib.org/library/Enc/insiderTrading.html (Last Visited on March26,2015)
25
Primary insiders are prohibited from trading on inside information for their
own account or for the account of others, conveying inside information to others without proper
authorization, and making recommendations to a third party to trade based upon inside
information (tipping). Secondary insiders are prohibited from trading for their own account or for
the account of others. Unlike primary insiders, secondary insiders are neither prohibited from
disclosing information to other people nor from tipping. However, the recipients of such
information would then become secondary insiders (tippees) and thus would be prohibited from
trading on the inside information for their own account or for the account of others. Nonetheless,
tippees can continue to pass along inside information provided that they do not trade on it
themselves or for the account of others. This result may be explained as a means of facilitating
the free flow of information in order to more expeditiously transform nonpublic inside
information into public information.14
(II) TYPES OF INSIDER TRADING
There are two main types of insider trading:
(1) THE CLASSICAL INSIDER TRADING where a corporate insider trades in the securities
of a corporation on the basis of material, non-public information; and
(2) THE MISSAPPROPRIATION INSIDER TRADING where a corporate outsider

“misappropriates confidential information for securities trading purposes, in breach of a duty
owed to the source of the information.
The Classical Theory
The Classical Theory recognizes two types of relationships giving rise to insider status.
One is the ‘‘permanent’’ insider, who is an employee of the issuer whose stock is traded. That
definition arguably includes everyone from an office clerk to an officer to the chairman of the
board who gains the information by dint of their position with the issuer.
14
http://www.imf.org/external/np/leg/sem/2002/cdmfl/eng/steinb.pd (Last Visited on March 28, 2015)
26
The other is a ‘‘temporary’’ insider, who is an agent, such as a lawyer, an accountant, or a
publicist, who is given access to sensitive information through a confidential relationship with
the issuer. The law imposes on both types of classical insiders a fiduciary duty of trust and
confidence to the issuer’s shareholders.
In transactions involving the issuer’s stock, this duty includes the requirement to abstain from
trading or to disclose the information to ‘‘prevent a corporate insider from taking unfair
advantage of . uninformed stockholders.’’
As for a classical theory Tippee, his liability is derivative of the tipper’s. The tippee assumes the
tipper’s duty of trust and confidence when the tippee knows—or should know—that the insider,
whether permanent or temporary, has breached her duty in sharing this information.15
The Misappropriation Theory
The misappropriation theory likewise requires a breach of duty, but it is not one owed to the
issuer’s shareholders. Instead, the duty runs to the source of the information, however unrelated
to the issuer.
‘‘Under this theory, a fiduciary’s undisclosed, self serving use of a principal’s information to
purchase or sell securities, in breach of a duty of loyalty and confidentiality, defrauds the
principal of the exclusive use of that information.’’ In recognition of the source of this duty, at
least some courts require proof of some injury, actual or potential, to the source of the
information.
Relationships Are Varied. The types of relationships covered by the misappropriation theory are
varied and broad. Some involve traditional common law fiduciary relationships. Others amount
to the ‘‘functional equivalent’’ of a fiduciary relationship. More recently, courts have begun to
accept the notion that such relationships can be imposed by agreement.
15
Corporate Finance Alert –Share Repurchases available at-
http://www.skadden.com/newsletters/Corporate_Finance_Alert_Share_Repurchases.pdf (Last Visited on April
1,2015)
27
What all of these relationships have in common are the twin duties of confidentiality and
trust/loyalty. The duty of confidentiality precludes the recipient of the information from
disclosing it to others, and the duty of trust or loyalty precludes him from trading on it.16
(III) CAUSES OF INSIDER TRADING
Markets in transferable securities are playing a more and more important role in the financing
companies and the economy as a whole. High growth enterprises depend on the efficiency and
transparency of financial markets in order to raise capital. Indeed, the smooth functioning of
financial markets and public confidence in them are prerequisites for sustained economic growth
and wealth
Market abuse not only increases the cost for companies to finance themselves but also harms the
integrity of financial markets and public confidence in securities and derivatives trading. Such
practice dissuades new investors and can have severe consequences. Therefore, it undermines
economic growth.
Insider trading has always been the stuff of controversy and scandal, making headlines and
destroying reputations. It is at the very root of discrimination, as it gives a small, usually already
relatively privileged minority, an unfair advantage over the broad majority who do not enjoy the
same equality of information or opportunity.
Insider trading, results because of certain persons by virtue of their position, being in a more
advantageous position, others with regard to price sensitive information. In the securities market,
information is money, and the balance in bargaining power obviously shifts favorably towards
the person in possession of inside information. The practice also undermines the expectation of
fairness and honesty that underlie public confidence in securities market. This is because
incentives for legitimate information gathering, analysis and dissemination are essential to the
efficient operation of securities market. The wrongful obtaining or use of such information is
unfair and adversely affects the incentive to invest in such activities. Therefore, it is essential not
that a failure to control this practice would not only result in unfairness permeating into the
16
Criminal Law Reporter- available at-http://www.coblentzlaw.com/images/uploads/content/misappropriation-
theory-in-insider-trading-prosecutions.pdf (Last Visited on April 1,2015)
28
market but also another obvious result would be a loss of public confidence in the institution as a
whole.
Insider trading gives rise to situation where some people, who are being treated as equal
competitors in the market, are in position whereby they have a greater access to price sensitive
information. Therefore, the inequality in insider trading results from the position of the person’s
abilities. It cannot be denied that there is a need to set to right the injustice to get a free market
and to protect the investors.17
Further, the behavior of the insider, in relation his equals in the market, is disloyal, dishonest and
fraudulent. It is also widely believed that insider trading violates the fiduciary duties imposed by
law. Certain insiders of a company have the fiduciary duties to act in a good faith not to misuse
corporate opportunities and to protect the interests of all the investors. The position of a director
in his relationship to the company is not that of an urgent but rather to some extent that of a
trustee. It essential that the position should not be abused, as it would amount to breach of trust.
It is the duty of a director to always act in the interests of the company, avoid conflict of interests
etc. However, this principle has a limitation is so far as the scope of ‘insider’ takes into its fold
more persons then the directors of the company who largely constitute the insiders who have a
fiduciary duties. The effects of insider trading on the investors as well as the financial markets
have been enlisted underneath.
(IV) EVOLUTION OF LAW RELATING TO INSIDER TRADING
With the discovery of massive frauds in the Indian and International capital markets, regulators
and legislatures have increasingly turned towards making corporate governance standards and
have attached penalties to violation of these ‘corporate governance’ ‘guidelines’. The concept of
insider trading is based on the availability of unpublished price sensitive information about a
company listed in the stock market. Use of such information by the persons having access to it
for trading in the stocks for purpose of making personal gains is called ‘Insider Trading’. Insider
Trading has been explained by the high powered Committee on Stock Exchange Reforms (Patel
Committee), 1986 in its report as “trading in shares of a company by the persons who are in the
management of the company or are close to them on the basis of undisclosed price sensitive
17
www.law.uh.edu (Last Visited on April 1, 2015)
29
information regarding the working of the company which they possess but not available to
others. Such trading involves misuse of confidential information and is unethical tan-ta-mounting
to betrayal of fiduciary position of trust and confidence. The persons who have access to such
information may be those closely associated with the company either as:-18
(1) Top management as promoters or directors.

(2) Executives and Employees.
(3) Persons associated with the company in their professional capacities as lawyers, auditors,
financial consultants, etc.
(4) Persons working in banks and financial institutions dealing with the company.
(5) Persons manning the firms having business relationship with the company and
(6) Persons not falling in above categories but have come in possession of price sensitive
information.
If insider trading is allowed unchecked in the capital markets, persons with insider information
will have a consistent edge in trades executed with such information and those without the
information will be consistent losers on the market.
To curb the menace of insider trading many developed nations have framed laws . U.K. and
U.S.A. have comprehensive legislations and monitoring agencies to ensure enforcement of the
law . In some nations, there are voluntary code of conduct to check insider trading like in
Germany. In U.S.A., Securities and Exchange Board has been vested with powers to check
insider trading and take preventive measures. Insider Trading Sanctions Act, 1984 was enacted
to strengthen the hands of SEC further to prevent insider trading.
In India time and again, insider trading has been drawing attention of the Government and its
agencies, for example, Sachar Committee in the year 1978 while examining the reforms in the
Companies Act and other Corporate laws recognized the need for curbing the abuse of insider
trading in the country by suggesting modifications in section 307 (Register of Directors
shareholdings) and 308 ( Duty of Directors to make Disclosures of Shareholdings). Again Patel
Committee in the year 1986 in its report dwelt with the need of immediate legislation to curb
18
Insider Trading in capital Markets- An Overview-available at
www.manupatrafast.com/articles/popopenarticles.aspx (Last Visited on April 2, 2015
30
insider trading and suggested amendments in Securities Contracts (Regulation) Act, 1956.SEBI
has brought out a detailed draft on insider trading Regulation for a comprehensive and self
contained legislation on the issue. The Securities and Exchange Board of India (Insider Trading)
Regulations, 1992 have been promulgated w.e.f. 19 November 1992. The power to issue orders
has been enhanced.19
(a) UNITED STATES OF AMERICA

The U.S. was the first country to implement laws and regulations restricting insider trading. Prior
to Black Tuesday in 1929, insider trading was largely considered as a legitimate part of manager
compensation. After the stock market crash, however, sentiment changed, and the U.S. Congress
acted to curb abuse believed to have contributed to the stock market slump and, ultimately, to the
Great Depression.
As part of the New Deal legislation of President Roosevelt, the Securities Act was implemented
in 1933, which contains prohibitions of fraud in the offering and sale of securities.In 1934,
Congress enacted the SEA, which contains under section 10(b) and rule 10b-5 a broad anti-fraud
provision in connection with the purchase and sale of securities. The U.S. justice system was left
with the task of developing common law based on the provisions and consequently created the
disclose or abstain rule and the misappropriation theory.
Section 4(a) of the SEA also constitutes the legal foundation for the Securities
and Exchange Commission (SEC), which can issue specific rules in order to shape regulations in
accordance with the SEA. The SEC did so under the 1968 Williams Act and enacted rule 14e-3,
which specifically bans trading on inside information concerning tender To strengthen the
enforcement framework of security trading laws, the U.S. Congress substantially increased
penalties for illegal insider trading by implementing the Insider Trading Sanctions Act (ITSA).
Both civil and criminal penalties were increased, and the rule set was extended
to include derivative instruments. Shortly after, the Insider Trading and Securities Fraud
19
Insider Trading in capital Markets- An Overview-available at
www.maupatrafast.com/articles/popopenarticles.aspx (Last Visited on April 2, 2015)
31
Enforcement Act of 1988 (ITSFEA) again increased the monetary fines and maximum jail terms.
It also required companies to take action in order to prevent insider trading by employees. The
Securities Enforcement Remedies and Penny Stock Reform Act of 1990 further increased
sanctions against insider trading, and the Sarbanes-Oxley Act of 2002 (SOX) introduced
\blackout periods" related to pension plans, such as 401(k) plans, during which no trading at all
by insiders is allowed.20
The SEA also includes laws regulating the publication of insider trades in
section 16(a), which remained virtually unchanged for more than half a century. In 1991 and
1996, however, the rules issued by the SEC were revised to simplify the notification and
publication requirements. One of the latest modifications of section 16(a) of the SEA is owed to
section 403(a) of the SOX, which drastically shortened the notification periods for insiders.
U.S. courts have played the largest role in defining the laws prohibiting
insider trading because laws regulating insider trading first arose largely out of U.S. common
law. In accordance with its Congressional mandate to "protect investors and keep its markets
free from fraud," however, the SEC has played a key role in shaping U.S. insider trading law.
SEC prosecutors, along with their Department of Justice (DOJ) counterparts, choose which suits
to bring and which legal arguments to set forth, thus shaping the discussion in the courts. The
U.S. prohibition on insider trading has progressed from an extremely broad beginning to an over
contraction period, followed by a third re-expansion of the law's reach.
The origins of insider trading prohibitions are found in the Securities Act of
1933 (1933 Act) and the Securities and Exchange Act of 1934 (1934 Act), which Congress
enacted in the wake of the Great Depression in an attempt to control the abuses believed to have
contributed to the stock market crash of 1929. Section 16(b) of the 1933 Act addressed insider
trading directly by prohibiting "short-swing profits" by corporate insiders trading their own
company's stock. In the 1934 Act, Congress did not address insider trading specifically; rather,
Congress afforded broad power to the SEC in Section 10(b) that permits the SEC to prosecute
individuals other than corporate officers for insider trading.21
20
Directors Dealing , Market Efficiency and Strategic Insider Trading in the German Stock Market. available at
www.mediatum2.ub.tum.de/download/.pdf (Last Visited on April 5, 2015)
21
available at www.wikipedia.org (Last Visited on April 6, 2015)
32
Section 10(b) of the 1934 Act addresses insider trading indirectly by
prohibiting any person "to use or employ, in connection with the purchase or sale of any security
registered on a national securities exchange or any security not so registered, any manipulative or
deceptive device or contrivance in contravention of such rules and regulations as the [SEC] may
prescribe."The SEC's Rule 10b-5, promulgated from Section 10(b), says, in relevant part. It shall
be unlawful for any person, directly or indirectly ....
(a) to employ any device, scheme, or artifice to defraud,
(b) to make any untrue statement of a material fact or omit to state a material fact necessary in
order to make the statements made, in light of the circumstances under which they were made,
not misleading, or
(c) to engage in any act, practice, or course of business which operates or would operate as a
fraud or deceit upon any person. upon any person, In connection with the purchase or sale of a
security. While the broad antifraud provisions of Section 10(b) and Rule 10b-5 do not expressly
discuss insider trading, they are where the SEC found authority to prosecute individuals for
illegal insider trading. According to the SEC, Section 10(b) and Rule 10b-5 were "relatively easy
to apply to the corporate insider who secretly traded in his own company's stock while in
possession of inside information because such behavior fit within traditional notions of fraud,"
but it was "far less clear" whether they "prohibited insider trading by a corporate 'outsider’.
The existing remedies had proved inadequate to deter violations and because
there was a public perception that the risk of detection was slight. Changes in the markets, such
as the introduction of new financial instruments and the proliferation of tender offers and proxy
contests, had necessitated additional Securities Exchange Commission enforcement tool sand
remedial actions. Resultantly, on 10 August 1984, the Insider Trading Sanctions Act was
introduced to amend the Securities Exchange Act,1934 to increase the sanctions against trading
in securities while in possession of material nonpublic information. It was designed to deter
insider trading by increasing the civil and criminal penalties for violations. The Act increased the
33
alternative enforcement remedies that were available with Securities Exchange Commission
against those engaging in insider trading.22
(b) INDIA
The history of Insider Trading in India date back to the 1940s with the formulation of
government committees such as the Thomas Committee of 1948, which evaluated inter alia, the
regulations in the US on short swing profits under Section 16 of the Securities Exchange Act,
1934. Thereafter, provisions relating to Insider Trading were incorporated in the Companies Act,
1956 under Sections 307 and 308, which required shareholding disclosures by the directors and
managers of a company.
Due to inadequate provisions of enforcement in the companies Act, 1956, the

Sachar Committee in 1979, the Patel Committee in 1986 and the Abid Hussain Committee in
1989 proposed recommendations for a separate statute regulating Insider Trading. The concept
of Insider Trading in India started fermenting in the 80's and 90's and came to be known and
observed extensively in the Indian Securities market. The rapidly advancing Indian Securities
market needed a more comprehensive legislation to regulate the practice of Insider Trading, thus
resulting in the formulation of the SEBI (Insider Trading) Regulations in the year 1992, which
were amended in the year 2002 after the discrepancies observed in the 1992 regulations in the
cases like Hindustan Levers Ltd. vs. SEBI23 and Rakesh Agarwal vs. SEBI24, etc. to remove the
lacunae existing in the Regulations of 1992.
The amendment in 2002 came to be known as the SEBI (Prohibition of Insider

Trading) Regulations, 1992. The regulations of 1992 seemed to be more punitive in nature. The
2002 amendment regulations on the other hand are preventive in nature. The amendment
required all the listed companies, market intermediaries and advisers to follow the regulations
and also take steps in advance to prevent the practice of insider trading. These regulations
included mandatory disclosures by the Directors and other officers of listed companies and also
22
The Global Crack down on insider Trading: A Silver Linning to the “ Great Recession “ available at
www.repository.law.indianaedu
23
(1998) SCL 311
24
(2004) 1 Comp .LJ 193 SAT
34
by the persons holding more than 5% of the company's shares. Insider trading practice is also
required to be curbed during vital announcements of the company.25
These preventive measures ensured the reduction of the cases involving the
practice of Insider Trading and also informing the persons who indulge in such practices, of the
laws relating to Insider Trading. These regulations particularly emphasize on the delegation of
powers on the entities themselves to conduct internal investigations before they present their case
before the SEBI in relation to insider trading. The guidelines provide for a definite set of
procedures and code of conduct for the entities whose employees, directors and owners are most
expected to be in a position to take an undue advantage of confidential inside information for
their personal profits. The regulations have gone through multiple amendments since then, with
the latest amendments being made in 2011 where various disclosure forms were made
mandatory. Majorly, the Model Code of Conduct has been amended to prescribe that the
directors/officers or certain employees who have bought/sold the shares cannot enter into an
opposite transaction, that is, sell/buy shares within next six months. This amendment has had far-
reaching consequences on the markets as it attempts to curb insider speculation based on
quarterly results and key events in the company.
Moreover, yet another positive move against insider trading has been taken by Companies Act,
2013 The Companies Act, 1956 did not have any express provisions laid down for insider trading
other than section 307 and section 308 but under the Companies Act, 2013 a new section has
been added i.e. Section 195.It has made insider trading restrictions applicable on shares of a
private or public unlisted company. It mandates that no director or key managerial personnel of a
company shall engage in insider trading; which is described to include, among other things,
subscribing or selling to shares by such persons or providing any price sensitive information to
any person. This restriction will impact deal structuring since almost every deal in the unlisted
company space would involve sharing of information by directors or key managerial personnel
or subscription or sale of shares by promoters who are normally in an executive capacity within
the company. Further, . Section 458 of the Companies Act, 2013 delegates powers to SEBI to
25
Research Directions available at- www.researchdirection.orgUploadArticle/182.pdf (Last Visited on April
10,2015)
35
prosecute insider trading in securities of listed companies and companies which intend to get
their securities listed.26
Therefore, the definition of company has been extended to cover entities that intend to get their
securities listed. Since the Securities And Exchange Board Of India. (Issue Of Capital And
Disclosure Requirements) Regulations, 2009,known as ICDR Regulations mandate disclosure of
all material information necessary for making an informed decision about applying for securities
in an Initial Public Offer(IPO), insider trading could occur in relation to the price discovery
process in the book-building under the ICDR Regulations, and would therefore be punishable by
SEBI. These provisions may particularly get attracted in the case of an offer for sale as part of
the IPO, where an insider could take advantage of his access to UPSI and trade with the investors
in the IPO without making such unpublished price sensitive information generally available in
the prospectus of the company.
In a recent move (2013), SEBI set up a high level committee to review the SEBI (Prohibition Of
Insider Trading) Regulations, 1992 under the chairmanship of N. K. Sodhi, former chief justice.
The committee has suggested fundamental changes to current regulations, aimed at improving
predictability, clarity and deterrence. The draft regulations define an insider in two ways: one, as
a 'connected person and two, as any outsider is in possession of unpublished price-sensitive
information. Interestingly, the definition of a connected person which includes someone who has
been in frequent communication with the officers of a company in a contractual or fiduciary
capacity, means that a person not engaged with the company in a formal capacity can still be
counted as an 'insider'. In other words, the proposed insider trading law extends even to the usual
appointments of external consultants and advisors. This extended definition gives SEBI sharper
teeth, and is a departure from existing regulations, under which the element of formal position
has often been deemed necessary.27
26
Historical Development of Laws on Inider Trading
In india-available at www.shodhganga.inflibnet.ac.in (Last Visited on April 10,2015)
27
Justice Sodhi Committee Report available at http://www.sebi.gov.in/sebiweb/home/detail/26940/yes/PR-
Justice-Sodhi-Committee-on-Insider-Trading-Regulations-submits-report-to-SEBI (last Visited on April 10,2015)
36
CHAPTER 2
REGULATING INSIDER TRADING – INDIAN PRESPECTIVE
Insider trading is an illegal act which is harmful not only for the Company but also and mainly
for the investors, as the direct consequence of insider trading affects the interest of the innocent
investors who have invested their monies in the companies. The relation between the investors
and the company’s management is of trust and faith and if any of the companies employees
indulge in the activity of doing insider trading then this trust and faith is breached.
So it becomes really important to regulate insider trading, in this chapter an endeavor has been
made to know who insider trading is regulated in India and what are the provisions by which
insider trading can be stopped and penalized.
Instances of insider trading in India were first reported in the 1940s. Directors, agents, auditors
and other officers of companies were found to be using inside information for profitably
speculating in the securities of their own companies. Thomas Committee had analysed these
instances and observed that insider trading occurred due to (i) the possession of information by
these people; (ii) before everybody else; (iii) regarding the changes in the economic condition of
companies and more particularly, regarding the size of the dividends to be declared, or of the
issue of bonus shares or the impending conclusion of a favourable contract.
India’s Company Law was enacted in 1956. However, it did not include any provisions to charge
the directors and the managing agents of companies for making the unfair use of inside
information. Although the Thomas Committee had pointed out the lack of a special legislation to
deal with the ‘unfair use of inside information’ in 1948 itself, it took a few decades to actually
formulate a legislation to curb insider training.28
(I) Legislative and regulatory regime
28
At paragraph 63 of Chapter VI titled ‘The Indian Security Market as It Is’ of Thomas Committee Report.
37
i. Legislative Regime for Insider Trading
If we talk about the regulations on the insider trading then we must have to first examine how
insider trading is regulated in India. There are provisions though not directly but to an extent
helpful, for a time period in dealing with insider trading. In the Companies Act, 1956 i.e.
section 307 and 308
Section 307:- Register of directors' shareholdings, etc.29
(1) Every company shall keep a register showing, as respects each director of the company, the number,
description and amount of any shares in, or debentures of, the company or any other body corporate,
being the company's subsidiary or holding company, or a subsidiary of the company's holding company,
which are held by him or in trust for him, or of which he has any right to become the holder whether on
payment or not.
(2) Where any shares or debentures have to be recorded in the said register or to be omitted therefrom, in
relation to any director, by reason of a transaction entered into after the commencement of this Act and
while he is a director, the register shall also show the date of, and the price or other consideration for, the
transaction : Provided that where there is an interval between the agreement for any such transaction and
the completion thereof, the date so shown shall be that of the agreement.
(3) The nature and extent of any interest or right in or over any shares or debentures recorded in relation
to a director in the said register shall, if he so requires, be indicated in the register.
(4) The company shall not, by virtue of anything done for the purposes of this section, be affected with
notice of, or be put upon inquiry as to, the rights of any person in relation to any shares or debentures.
(5) The said register shall, subject to the provisions of this section, be kept at the registered office of the
company, and shall be open to inspection during business hours (subject to such reasonable restrictions as
the company may, by its articles or in general meeting, impose, so that not less than two hours in each day
are allowed for inspection) as follows:
(a) during the period beginning fourteen days before the date of the company's annual general meeting
and ending three days after the date of its conclusion, it shall be open to the inspection of any member or
holder of debentures of the company ; and
29
The Companies Act 1956, ( Act 1 of 1956)
38
(b) During that or any other period, it shall be open to the inspection of any person acting on behalf of the
Central Government or of the Registrar.
In computing the fourteen days and the three days mentioned in this sub-section, any day which is a
Saturday, a Sunday or a public holiday shall be disregarded.
(6) Without prejudice to the rights conferred by sub-section (5), the Central Government or the Registrar
may, at any time, require a copy of the said register, or any part thereof.
(7) The said register shall also be produced at the commencement of every annual general meeting of the
company and shall remain open and accessible during the continuance of the meeting to any person
having the right to attend the meeting. If default is made in complying with this sub-section the company,
and every officer of the company who is in default, shall be punishable with fine which may extend to
five thousand rupees.
(8) If default is made in complying with sub-section (1) or (2), or if any inspection required under this
section is refused, or if any copy required thereunder is not sent within a reasonable time, the company,
and every officer of the company who is in default, shall be punishable with fine which may extend to
fifty thousand rupees and also with a further fine which may extend to 3 two hundred] rupees for every
day during which the default continues.
(9) In the case of any such refusal, the 4 Central Government or Tribunal, as the case may be, may also,
by order, compel an immediate inspection of the register.
(10) For the purposes of this section –
(a) any person in accordance with whose directions or instructions the Board of directors of a company is
accustomed to act, shall be deemed to be a director of the company ; and
(b) a director of a company, shall be deemed to hold, or to have an interest or a right in or over, any
shares or debentures, if a body corporate other than the company holds them or has that interest or right in
or over them, and either –30
(i) That body corporate or its Board of directors is accustomed to act in accordance with his directions or
instructions; or
30
39
(ii) He is entitled to exercise or control the exercise of one-third or more of the total voting power
exercisable at any general meeting of that body corporate.
For the information of shareholders and general public, companies are required to maintain a
register of the director’s shareholding. The number of shares or debentures held by each director
should be specifies showing also his holdings in the company’s subsidiaries and the company’s
holding company and other subsidiaries of the same holding company. The register must also
give details of the shares held” in trust for him or of which he has any right to become the holder
on payment or not”, A director may, however, insist that the nature and extent of his interest
owner the shares should also be recorded. Where by reason of any transaction entered into by a
director, any shares or debentures have to be recorded in the register or omitted from it; the
register must show the date of and consideration for the transaction.
The register is open to the inspection of members subject to reasonable restrictions which may be
imposed by the company. But during the period of fourteen days before and three days after an
annual general meeting the register must remain open to the inspection of shareholders during
any business hours not less than two hours in each day. Where the right of inspection is not
allowed, the Central Government of Tribunal may by order compel and immediate inspection of
the register.31
Section 308:- DUTY OF DIRECTORS AND PERSONS DEEMED TO BE DIRECTORS

TO MAKE DISCLOSURE OF SHAREHOLDINGS32
(1) Every director of a company, and every person deemed to be a director of the company by
virtue of sub-section (10) of section 307, shall give notice to the company of such matters
relating to him as may be necessary for the purpose of enabling the company to comply with the
provisions of that section.
(2) Any such notice shall be given in writing, and if it is not given at a meeting of the Board, the
person giving the notice shall take all reasonable steps to secure that it is brought up and read at
the meeting of the Board next after it is given.
31
Dr. Avatar Singh, Company Law ( Eastern Book Company 2013 edition)
32
40
(3) Any person who fails to comply with sub-section (1) or (2) shall be punishable with
imprisonment for a term which may extend to two years,· or with fine which may extend to 1
fifty thousand rupees, or with both.33
For the purpose of this section the word ”director” would include any person in
accordance with whose directions the company’s board is accustomed to act, and also any other
company whose board is accustomed to act according to the directions of a director, or if such
director holds one-third of the voting strength in that company. Entries in the register have also
to be made about the shareholding of managing agents, secretaries and treasurers and managers,
if the company has any. Directors are obliged to make necessary disclosures to enable the
company to prepare the register.34
But the above provisions are not strong enough to tackle the menace of insider trading as they
are not directly dealing with insider trading.
Moreover, a positive move against insider trading has been taken by Companies Act, 2013 The
Companies Act, 1956 did not have any express provisions laid down for insider trading other
than section 307 and section 308 but under the Companies Act, 2013 a new section has been
added i.e. Section 195.It has made insider trading restrictions applicable on shares of a private or
public unlisted company. It mandates that no director or key managerial personnel of a company
shall engage in insider trading; which is described to include, among other things, subscribing or
selling to shares by such persons or providing any price sensitive information to any person. This
restriction will impact deal structuring since almost every deal in the unlisted company space
would involve sharing of information by directors or key managerial personnel or subscription or
sale of shares by promoters who are normally in an executive capacity within the company.35
SECTION 195: PROHIBITION ON INSIDER TRADING OF SECURITIES36
. (1) No person including any director or key managerial personnel of a company shall enter into
insider trading:
33
The Companies Act, 1956 ( Act 1 of 1956)
34
Dr. Avatar Singh, Company Law ( Eastern Book Company 2013 edition)
35
Available at www.researchdirection.org (Last Visited On April 12,2015)
36
41
Provided that nothing contained in this sub-section shall apply to any communication required in
the ordinary course of business or profession or employment or under any law.
Explanation.—for the purposes of this section,—
(a) “Insider trading” means—
(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 counseling about procuring or communicating directly or indirectly any non-public
price-sensitive information to any person;
(b) “price-sensitive information” means 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.
(2) If any person contravenes the provisions of this section, he shall be punishable with
imprisonment for a term which may extend to five years or with fine which shall not be less than
five lakh rupees but which may extend to twenty-five core rupees or three times the amount of
profits made out of insider trading, whichever is higher, or with both.
Further, Section 458 of the Companies Act, 2013 delegate’s powers to SEBI to prosecute insider
trading in securities of listed companies and companies which intend to get their securities listed.
Therefore, the definition of company has been extended to cover entities that intend to get their
securities listed.
SECTION 458:- DELEGATION BY CENTRAL GOVERNMENT OF ITS POWERS AND

FUNCTIONS37
(1) The Central Government may, by notification, and subject to such conditions, limitations
and restrictions as may be specified therein, delegate any of its powers or functions under
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this Act other than the power to make rules to such authority or officer as may be
specified in the notification:
Provided that the powers to enforce the provisions contained in section 194 and section
195 relating to forward dealing and insider trading shall be delegated to Securities and
Exchange Board for listed companies or the companies which intend to get their
securities listed and in such case, any officer authorized by the Securities and Exchange
Board shall have the power to file a complaint in the court of competent jurisdiction.
(2) A copy of every notification issued under sub-section (1) shall, as soon as may be after it
is issued, be laid before each House of Parliament.
Since the Securities And Exchange Board Of India. (Issue of Capital and Disclosure
Requirements) Regulations, 2009,known as ICDR Regulations mandate disclosure of all material
information necessary for making an informed decision about applying for securities in an Initial
Public Offer(IPO), insider trading could occur in relation to the price discovery process in the
book-building under the ICDR Regulations, and would therefore be punishable by SEBI. These
provisions may particularly get attracted in the case of an offer for sale as part of the IPO, where
an insider could take advantage of his access to UPSI and trade with the investors in the IPO
without making such unpublished price sensitive information generally available in the
prospectus of the company.
capacity means that a person not engaged with the company in a formal capacity can still be
counted as an 'insider'. In other words, the proposed insider trading law extends even to the usual
appointments of external consultants and advisors. This extended definition gives SEBI sharper
teeth, and is a departure from existing regulations, under which the element of formal position
has often been deemed necessary.
THE Securities and Exchange Board Of India has issued the guidelines for the prohibition of the
Insider Trading in India. The SECURITIES AND EXCHANGE BOARD OF INDIA
(PROHIBITION OF INSIDER TRADING) REGULATIONS, 1992, under this the Insider
Trading, insider, connected person, unpublished price sensitive information are clearly defined.
For understanding Insider Trading, first we have have to understand the meaning of ‘ Insider’
43
Section 2 (e) defines“Insider”38 means any person who,
(i) is or was connected with the company or is deemed to have been connected with the
company and is reasonably expected to have access to unpublished price sensitive
information in respect of securities of company, or
(ii) has received or has had access to such unpublished price sensitive information
Section 2(c) defines “Connected Person”39 means any person who
(i) is a director, as defined in clause (13) of section 2 of the Companies Act, 1956 (1 of
1956), of a company, or is deemed to be a director of that company by virtue of sub-
clause (10) of section 307 of that Act or
(ii) occupies the position as an officer or an employee of the company or holds a position
involving a professional or business relationship between himself and the company
whether temporary or permanent and who may reasonably be expected to have an access
to unpublished price sensitive information in relation to that company:
(iii) The words “connected person” shall mean any person who is a connected person six
months prior to an act of insider trading.
Section 2(h) defines “A Person is deemed to be a Connected Person”40 means, if such person
(i) is a company under the same management or group, or any subsidiary company
thereof within the meaning of sub-section (1B) of section 370, or sub-section (11) of
section 372, of the Companies Act, 1956 (1 of 1956) or sub-clause (g) of section 2 of
the Monopolies and Restrictive Trade Practices Act, 1969 (54 of 1969) as the case
may be; or
(ii) is an intermediary as specified in section 12 of the Act, Investment company, Trustee
Company, Asset Management Company or an employee or director thereof or an
official of a stock exchange or of clearing house or corporation
(iii) is a merchant banker, share transfer agent, registrar to an issue, debenture trustee,
broker, portfolio manager, Investment Advisor, sub-broker, Investment Company or
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Securities and Exchange Board of India ( Prohibition of Insider Trading Regulations ) 1992
39
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44
an employee thereof, or is member of the Board of Trustees of a mutual fund or a
member of the Board of Directors of the Asset Management Company of a mutual
fund or is an employee thereof who have a fiduciary relationship with the company;
(iv) is a Member of the Board of Directors or an employee of a public financial
institution as defined in section 4A of the Companies Act, 1956; or
(v) is an official or an employee of a Self-regulatory Organisation recognised or
authorised by the Board of a regulatory body; or
(vi) is a relative of any of the aforementioned persons;
(vii) is a banker of the company.
(viii) relatives of the connected person; or
(ix) is a concern, firm, trust, Hindu undivided family, company or association of persons
wherein any of the connected persons mentioned in sub-clause (i) of clause (c), of this
regulation or any of the persons mentioned in sub-clause (vi), (vii) or (viii) of this
clause have more than 10 per cent of the holding or interest.
Section 2 (k) defines “unpublished”41 information means which is not published by the
company or its agents and is not specific in nature. Speculative reports in print or electronic
media shall not be considered as published information.
Section2 (ha) “Price Sensitive Information”42 means any information which relates directly or
indirectly to a company and which if published is likely to materially affect the price of securities
of company.
The following shall be deemed to be price sensitive information :—
(a) periodical financial results of the company;

(b) intended declaration of dividends (both interim and final);
(c) issue of securities or buy-back of securities.
(d) any major expansion plans or execution of new projects.
(e) amalgamation, mergers or takeovers.
(f) disposal of the whole or substantial part of the undertaking.
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Securities and Exchange Board of India ( Prohibition of Insider Trading Regulations) 1992
45
(g) and significant changes in policies, plans or operations of the company.
ii. Regulation of insider Trading
The Securities and Exchange Board of India act,1992 was passed to protect the investors. As it
can be understood from the Preamble of the act which states that
“ An Act to provide for the establishment of a Board to protect the Interest of investors in
securities and to promote the development of, and to regulate, the securities market and for
matters connected therewith or incidental thereto”
So, the SEBI has following objects;-
(a) Regulation of the securities market and other incidental matters.

(b) Promoting orderly and healthy growth of the securities market.
(c) Protection of the interests of investors in securities.
(d) Promoting the fair dealings by the issuer of securities and ensuring a market place where
they can raise funds at a relataively low cost.
(e) Monitoring the activities of stock exchanges, mutual funds and merchant bankers etc43
(f) regulating and developing a code of conduct and fair practices by intermediaries like
brokers, merchant bankers etc., with a view to making them more competitive and
professionals.
The SEBI acts deals in protecting the interest of the investors in Securities so It becomes
important to understand the meaning of Securities.
Now we will look at the regulations under the, Securities and Exchange Board of India (
Prohibition of Insider Trading) regulations,1992.
Regulation 3- Prohibition on dealing, communicating or counselling on matters relating to

insider trading.44
No insider shall—
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The Securities and Exchange Board of India, Act 1992 ( Act 15 of 1992)
44
46
(i) either on his own behalf or on behalf of any other person, deal in securities of a company
listed on any stock exchange when in possession of any unpublished price sensitive information
or
(ii) communicate or counsel or procure directly or indirectly any unpublished price sensitive
information to any person who while in possession of such unpublished price sensitive
information shall not deal in securities.
Provided that nothing contained above shall be applicable to any communication required in the
ordinary course of business or profession or employment or under any law.
Regulation 3 A- No company shall deal in the securities of another company or associate of that
other company while in possession of any unpublished price sensitive information.
Regulation 3 B- In a proceeding against a company in respect of regulation 3A, it shall be a

defence to prove that it entered into a transaction in the securities of a listed company when the
unpublished price sensitive information was in the possession of an officer or employee of the
company, if :
(a) the decision to enter into the transaction or agreement was taken on its behalf by a person or
persons other than that officer or employee; and
(b) such company has put in place such systems and procedures which demarcate the activities
of the company in such a way that the person who enters into transaction in securities on behalf
of the company cannot have access to information which is in possession of other officer or
employee of the company; and
(c) it had in operation at that time, arrangements that could reasonably be expected to ensure that
the information was not communicated to the person or persons who made the decision and that
no advice with respect to the transactions or agreement was given to that person or any of those
persons by that officer or employee; and
(d) the information was not so communicated and no such advice was so given.
Regulation 4- Any insider who deals in securities in contravention of the provisions of regulation
3 or 3A shall be guilty of insider trading.
47
Regulation 4A.- SEBI’s Power to make inquiries and inspection.45
(1) If the Board suspects that any person has violated any provision of these regulations, it may
make inquiries with such persons or any other person as mentioned in clause (i) of sub-section
(2) of section 11 as deemed fit, to form a prima facie opinion as to whether there is any violation
of these regulations.
(2)The Board may appoint one or more officers to inspect the books and records of insider(s) or
any other persons as mentioned in clause (i) of sub-section (2) of section 11 for the purpose of
sub-regulation.
Regulation 5 – SEBI’s right to investigate.46
(1) Where the Board, is of prima facie opinion that it is necessary to investigate and inspect the
books of account, either records and documents of an insider or any other person mentioned in
clause (i) of sub-section (1) of section 11 of the Act for any of the purposes specified in sub-
regulation (2), it may appoint an investigating authority for the said purpose.
(2) The purpose referred to in sub-regulation (1) may be as follows:
(a) to investigate into the complaints received from investors, intermediaries or any other
person on any matter having a bearing on the allegations of insider trading; and
(b) to investigate suo-motu upon its own knowledge or information in its possession to protect
the interest of investors in securities against breach of these regulations.
Regulation 6 - Procedure for investigation.47
. (1) Before undertaking any investigation under regulation 5, the Board shall give a reasonable
notice to insider for that purpose.
(2) Notwithstanding anything contained in sub-regulation (1), where the Board is satisfied that in
the interest of investors or in public interest no such notice should be given, it may by an order in
writing direct that the investigation be taken up without such notice.
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(3) On being empowered by the Board, the investigation authority shall undertake the
investigation and inspection of books of account and the insider against whom an investigation is
being carried out 31an insider or any other person mentioned in clause (i) of sub-section (1) of
section 11 of the Act shall be bound to discharge his obligations as provided in regulation 7.
Regulation 7 - Obligations of insider on investigation by the Board.48
(1) It shall be the duty of every insider, who is being investigated 32[or any other person
mentioned in clause (i) of sub-section (1) of section 11 of the Act], to produce to the
investigating authority such books, accounts and other documents in his custody or control and
furnish the authority with the statements and information relating to the transactions in securities
market within such time as the said authority may require.
(2) The insider or any other person mentioned in] clause (i) of sub-section (2) of section 11 of the
Act shall allow the investigating authority to have reasonable access to the premises occupied by
such insider and also extend reasonable facility for examining any books, records, documents
and computer data in the possession of the stock-broker or any other person and also provide
copies of documents or other materials which in the opinion of the investigating authority are
relevant.
(3) The investigating authority, in the course of investigation, shall be entitled to examine or
record statements of any member, director, partner, proprietor and employee of the insider or any
other person mentioned in clause (i) of sub-section (2) of section 11 of the Act.
(4) It shall be the duty of every director, proprietor, partner, officer and employee of the insider
to give to the investigating authority all assistance in connection with the investigation, which
the insider or any other person mentioned in clause (i) of sub-section (2) of section 11 of the Act
may be reasonably expected to give.
Regulation 8- Submission of Report to the Board.49
The investigating authority shall, within reasonable time of the conclusion of the investigation,
submit an investigation report to the Board.
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49
49
Regulation 9 - Communications of findings, etc.50
(1) The Board shall, after consideration of the investigation report communicate the findings to
the person suspected to be involved in insider trading or violation of these regulations.
(2) The person to whom such findings has been communicated shall reply to the same within 21
days; and
(3) On receipt of such a reply or explanation, if any, from such person, the Board may take such
measures as it deems fit to protect the interests of the investors and in the interests of the
securities market and for the due compliance of the provisions of the Act, the regulations made
thereunder including the issue of directions under regulation.
Regulation 10 - Appointment of Auditor.51
Notwithstanding anything contained in regulation 4A and regulation 5, the Board may appoint a
qualified auditor to investigate into the books of account or the affairs of the insider or any other
person mentioned in clause (i) of sub-section (1) of section 11 of the Act.
Provided that, the auditor so appointed shall have the same powers of the inspecting authority as
stated in regulation 5 and the insider shall have the obligations specified in regulation 7.
Now we will discuss about the Penalties which is imposed if any person or company is found in
Insider Trading.
Regulation 11- Directions by the Board.52
Under this the Board is empowered to issue any or all of the following order, namely.
(a) directing the insider or such person as mentioned in clause (i) of sub-section (2) of section 11
of the Act not to deal in securities in any particular manner;
(b) prohibiting the insider or such person as mentioned in clause (i) of sub-section (2) of section
of the Act from disposing of any of the securities acquired in violation of these regulations;
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50
(c) restraining the insider to communicate or counsel any person to deal in securities;
(d) declaring the transaction(s) in securities as null and void;
(e) directing the person who acquired the securities in violation of these regulations to deliver
the securities back to the seller :
Provided that in case the buyer is not in a position to deliver such securities, the market price
prevailing at the time of issuing of such directions or at the time of transactions whichever is
higher, shall be paid to the seller;
(g) directing the person who has dealt in securities in violation of these regulations to transfer
an amount or proceeds equivalent to the cost price or market price of securities,
whichever is higher to the investor protection fund of a recognized stock exchange.
(C)PENALTIES FOR INSIDER TRADING
Section 195 Prohibition on Insider Trading,53 Prohibits Insider Trading clause (2) of the
provision states that if any person contravenes the provision of this section, he shall be liable to
the following punishment:
(1) Imprisonment for a term which may extend to five years or

(2) With fine which shall not be less than five lakh rupees but which may extend to twenty
five crore rupees or
(3) Three times the amount of profits made out of insider trading whichever is higher, or with
both.
Under the Securities and Exchange Board of India act, 1992 section 15G talks about the Penalty
for Insider Trading
Section 15G- Penalty for insider trading.54 - If any insider who,-
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The Companies Act, 2013 ( Act 18 of 2013 )
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The Securities and Exchange Board of India, Act 1992 ( Act 15 of 1992)
51
(i) either on his own behalf or on behalf of any other person, deals in securities of a body
corporate listed on any stock exchange on the basis of any unpublished price sensitive
information; or
(ii) communicates any unpublished price- sensitive information to any person, with or without
his request for such information except as required in the ordinary course of business or under
any law; or
(iii)counsels, or procures for any other person to deal in any securities of any body corporate on
the basis of unpublished price-sensitive information. shall be liable to a penalty of twenty-five
crore rupees or three times the amount of profits made out of insider trading, whichever is
higher.
The Securities and Exchange Board of India has issued the new regulation to put in place a
framework for prohibition of insider trading in securities and to strengthen the legal framework
thereof, namely: THE SECURITIES AND EXCHANGE BOARD OF INDIA (PROHIBITION
OF INSIDER TRADING) REGULATIONS, 2015 SEBI has issued and notified the SEBI
(Prohibition of Insider Trading) Regulations, 2015 (Regulations) on 15th January, 2015.
A high Level Committee (‘Committee’) was constituted by SEBI under the chairmanship of
Justice Shri N.K Sodhi, former chief justice of Karnataka and Kerala High Courts and former
presiding officer of the Securities Appellate Tribunal to review the Regulations i.e.,1992
regulations on insider trading. Which submitted its report in December 7,2013. Based on the
recommendation of the committee’s report, SEBI has formulated these Regulations. 55
While some of the Regulations have been enacted at par with the international practices to bring
more clarity, some of the Regulations are more onerous and testing for the corporate to
implement at initial stage. The Regulations are precisely more clear in some aspects say as on
what to be construed as price sensitive information by defining specifically “generally available
information” separately. The said Regulation also laid down the concept of “pre-trading plan”
for those insiders who are supposed to have unpublished price sensitive information throughout
the year. The landmark deviation in new Regulations in context to the 1992 regulation is right of
55
Justice Sodhi Committee Report available at http://www.sebi.gov.in/sebiweb/home/detail/26940/yes/PR-
Justice-Sodhi-Committee-on-Insider-Trading-Regulations-submits-report-to-SEBI (last visited on april 16,2015)
52
defense by the insider to rebut the charges of insider trading. The Regulations though establish
all together a new set of governance by legislating these Regulations in all-inclusive way
covering disclosures of trading by KMP/Directors/promoters as well as employees on crossing
the threshold of Rs. 10 lakh in value.
On the other hand, some Regulations have been left for open ended for
discussion requiring clarity such as whether the stock options granted to employees can be
exercised by employee during closure of trading window. Looking into the Regulations, it
indicates that such ESOP can only be exercised if disclosed in trading plan as submitted by
employee and further whether such trading plan can be executed during the closure of the trading
window or not is not specifically mentioned. Another ambiguity in the Regulations relates to the
requirement of disclosure of trades in securities by directors, promoters as well as employees on
crossing the threshold of Rs. 10 lakhs in value, which seems to be too much arduous for the
companies having market price of share above or approx. Rs. 1000 (means triggering disclosure
on acquisition/dispose of approx.1000 shares). It would have been more rational to have the
requirement of continual disclosure limited to KMP/directors/promoters on threshold of Rs. 10
lakh in value and for employees the threshold could have been kept at higher value say Rs. 15 or
20 lakh.
What’s new in Regulations56
 Connected person now also includes any person who is or has during the six months prior
to the concerned act been associated with a company, directly or indirectly, in any
capacity including by reason of frequent communication with its officers or by being in
any contractual, fiduciary or employment relationship.
 Disclosures by KMP and employees.
 Open to the insider to prove his innocence by demonstrating the circumstances mentioned
in the proviso of Regulation 4.
 Trading plans for Insiders who are in possession of unpublished price sensitive
information.
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Inside Look at Insider Trading Regulation2015 available at www.taxguru.in/sebi/Insider Trading-regulations-
2015.html
53
 Companies to establish code of practices and procedures for fair disclosure of
unpublished price sensitive information.
 Disclosures by other connected person or class of connected persons at the discretion of
the company.
Under the new Regulations which are notified by the SEBI, there are changes under the
definition of:- Insider, Unpublished Price Sensitive Information, Connected Person & etc
Section 2(g) defines Insider:-57
An insider would mean a person in possession of or has access to price-sensitive information or

Connected Person.
SEBI defines ‘Insider’ to include persons connected on the basis of being in any contractual,
fiduciary or employment relationship that allows such people access to unpublished price
sensitive information (UPSI).
Section 2 (l) defines "trading”58
Trading means and includes subscribing, buying, selling, dealing, or agreeing to subscribe, buy,
sell, deal in any securities, and "trade" shall be construed accordingly.
Under the parliamentary mandate, since the Section 12A (e) and Section 15G of the Act employs
the term 'dealing in securities', it is intended to widely define the term “trading” to include
dealing. Such a construction is intended to curb the activities based on unpublished price
sensitive information which are strictly not buying, selling or subscribing, such as pledging etc
when in possession of unpublished price sensitive information.
Since “generally available information” is defined, it is intended that anyone in possession of or

having access to unpublished price sensitive information should be considered an “insider”
regardless of how one came in possession of or had access to such information. Various
circumstances are provided for such a person to demonstrate that he has not indulged in insider
trading.
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Therefore, this definition is intended to bring within its reach any person who is in
receipt of or has access to unpublished price sensitive information. The onus of showing that a
certain person was in possession of or had access to unpublished price sensitive information at
the time of trading would, therefore, be on the person leveling the charge after which the person
who has traded when in possession of or having access to unpublished price sensitive
information may demonstrate that he was not in such possession or that he has not traded or or he
could not access or that his trading when in possession of such information was squarely covered
by the exonerating circumstances.
Section 2(d) Connected Person:-59
(i)Any person who is or has during the six months prior to the concerned act been associated
with a company, directly or indirectly, in any capacity including by reason of frequent
communication with its officers or by being in any contractual, fiduciary or employment
relationship or by being a director, officer or an employee of the company or holds any position
including a professional or business relationship between himself and the company whether
temporary or permanent, that allows such person, directly or indirectly, access to unpublished
price sensitive information or is reasonably expected to allow such access.
(ii) Without prejudice to the generality of the foregoing, the persons falling within the following
categories shall be deemed to be connected persons unless the contrary is established, -
(a). an immediate relative of connected persons specified in clause (i); or
(b). a holding company or associate company or subsidiary company; or
(c). an intermediary as specified in section 12 of the Act or an employee or director thereof; or
(d). an investment company, trustee company, asset management company or an employee or

director thereof; or
(e). an official of a stock exchange or of clearing house or corporation; or
(f). a member of board of trustees of a mutual fund or a member of the board of directors of the
asset management company of a mutual fund or is an employee thereof; or
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(g). a member of the board of directors or an employee, of a public financial institution as
defined in section 2 (72) of the Companies Act, 2013; or
(h). an official or an employee of a self-regulatory organization recognised or authorized by the

Board; or
(i). a banker of the company; or
(j). a concern, firm, trust, Hindu undivided family, company or association of persons wherein a
director of a company or his immediate relative or banker of the company, has more than ten per
cent. of the holding or interest.
It is intended that a connected person is one who has a connection with the company that is
expected to put him in possession of unpublished price sensitive information. Immediate
relatives and other categories of persons specified above are also presumed to be connected
persons but such a presumption is a deeming legal fiction and is rebuttable. This definition is
also intended to bring into its ambit persons who may not seemingly occupy any position in a
company but are in regular touch with the company and its officers and are involved in the know
of the company’s operations. It is intended to bring within its ambit those who would have
access to or could access unpublished price sensitive information about any company or class of
companies by virtue of any connection that would put them in possession of unpublished price
sensitive information.
Section 2 (n) "unpublished price sensitive information"60 means any information, relating to a
company or its securities, directly or indirectly, that is not generally available which upon
becoming generally available, is likely to materially affect the price of the securities and shall,
ordinarily including but not restricted to, information relating to the following: –
(i) financial results;
(ii) dividends;
(iii) change in capital structure;
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(iv) mergers, de-mergers, acquisitions, de-listings, disposals and expansion of business and such
other transactions;
(v) changes in key managerial personnel; and
(vi) material events in accordance with the listing agreement.
It is intended that information relating to a company or securities, that is not generally available
would be unpublished price sensitive information if it is likely to materially affect the price upon
coming into the public domain. The types of matters that would ordinarily give rise to
unpublished price sensitive information have been listed above to give illustrative guidance of
unpublished price sensitive information.
Section 2(e) "generally available information"61 means information that is accessible to the
public on a non-discriminatory basis.
It is intended to define what constitutes generally available information so that it is easier to

crystallize and appreciate what unpublished price sensitive information is. Information published
on the website of a stock exchange, would ordinarily be considered generally available.
Regulation 3:- Communication or procurement of unpublished price sensitive information.62
Prohibits the insider from communicating, providing, or allowing access to any unpublished
price sensitive information except where such communication is in furtherance of legitimate
purpose, performance of duties or discharge of legal obligations. However in case of a
transaction that would—
(i)entail an obligation to make an open offer under the takeover regulation where the board of
directors of the company is of informed opinion, or
(ii)not attract the obligation to make an open offer under the takeover regulations but where the
board of directors of the company is informed opinion that the proposed transaction is in the best
interests of the company and the information that constitute unpublished price sensitive
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information is disseminated to be made generally available at least two trading days prior to the
proposed transaction exemption from this Regulation has been provided.
Regulation 4:- Trading when in possession of unpublished price sensitive information.63
Under this regulation no insider shall trade in securities that are listed or proposed to be listed on
stock exchange when in possession of unpublished price sensitive information.
However there are certain exemptions i.e. when there is an off-market transfer between
promoters who are aware of price sensitive information or where the trading is pursuant to
trading plan.
Regulation 5:- Trading Plans.64
It is basically introduced with the concept to have transparent frame for trading in securities by
those insiders who are having unpublished price sensitive information through the year. The
insider would be required to submit trading plan in advance to the compliance officer for his
approval. The compliance officer is also empowered to take additional undertakings from the
insiders for approval of the trading plan. Such trading plan on approval will also be disclosed to
the stock Exchanges, where the securities of the company are listed.
The trading plan shall comply with requirements as follows:
(i) It shall be submitted for a minimum period of 12 months.
(ii) No overlapping of plan with the existing plan submitted by Insider.
(iii) It shall set out either the value of trades to be effected or the number of securities to be
traded along with the nature of the trade and the intervals at, or dates on which such trades shall
be effected.
(iv) Trading can only commence only after 6 months from public disclosure of plan. (v) No
trading between 20th day prior to closure of financial period and 2nd trading day after disclosure
of financial results.
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(vi) Compliance officer to approve the plan.
(vii) The trading plan once approved shall be irrevocable and the insider shall mandatorily have
to implement the plan, without being entitled to either deviate from it or to execute any trade in
the securities outside the scope of the trading plan.(Except in few case like where insider is in
possession of price sensitive information at the time of formulation of the plan and such
information has not become generally available at the time of the commencement of
implementation)
(viii) Upon approval of the trading plan, the compliance officer shall notify the plan to the stock
exchanges on which the securities are listed.
(II) DISCLOSUE REQUIREMENTS
The SEBI (Prohibition of Insider Trading )Regulations, 1992 states the policy on disclosures and
internal procedure for prevention of Insider Trading. Regulation 12 of the regulation provides a
code of internal procedures and conduct for listed companies and other entities.
Regulation 12 Code of internal procedures and conduct for listed companies and other
entities.65
(1) All listed companies and organisations associated with securities markets including :
(a) the intermediaries as mentioned in section 12 of the Act, asset management company
and trustees of mutual funds ;
(b) the self-regulatory organisations recognised or authorised by the Board;
(c) the recognised stock exchanges and clearing house or corporations;
(d) the public financial institutions as defined in section 4A of the Companies Act, 1956; and
(e) the professional firms such as auditors, accountancy firms, law firms, analysts,
consultants,
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etc., assisting or advising listed companies, shall frame a code of internal procedures and conduct
as near thereto the Model Code specified in Schedule I of these Regulations without diluting it in
any manner and ensure compliance of the same.
(2) The entities mentioned in sub-regulation (1), shall abide by the code of Corporate Disclosure
Practices as specified in Schedule II of these Regulations.
(3) All entities mentioned in sub-regulation (1), shall adopt appropriate mechanisms and
procedures to enforce the codes specified under sub-regulations (1) and (2).
(4) Action taken by the entities mentioned in sub-regulation (1) against any person for violation
of the code under sub-regulation (3) shall not preclude the Board from initiating proceedings for
violation of these Regulations.
Regulation 13 Disclosure of interest or holding in a listed companies by certain persons-66
Initial Disclosure.
(1) Any person who holds more than 5% shares or voting rights in any listed company shall
disclose to the company 46[in Form A, the number of shares or voting rights held by such
person, on becoming such holder, within 2 working days of :—
(a) the receipt of intimation of allotment of shares; or
(b) the acquisition of shares or voting rights, as the case may be.
(2) Any person who is a director or officer of a listed company shall disclose to the company in
Form B the number of shares or voting rights held and positions taken in derivatives by such
person and his dependents (as defined by the company), within two working days of becoming a
director or officer of the company.
Continual disclosure.
(3) Any person who holds more than 5% shares for voting rights in any listed company shall
disclose to the company in Form C the number of shares or voting rights held and change in
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shareholding or voting rights, even if such change results in shareholding falling below 5%, if
there has been change in such holdings from the last disclosure made under sub-regulation (1) or
under this sub-regulation; and such change exceeds 2% of total shareholding or voting rights in
the company.
(4) Any person who is a director or officer of a listed company, shall disclose to the company
and the stock exchange where the securities are listed in Form D, the total number of shares or
voting rights held and change in shareholding or voting rights, if there has been a change in such
holdings of such person and his dependents (as defined by the company) from the last disclosure
made under sub-regulation (2) or under this sub-regulation, and the change exceeds Rs. 5 lakh in
value or 25,000 shares or 1% of total shareholding or voting rights, whichever is lower.67
Under the SEBI (Prohibition of Insider Trading) Regulation,2015 chapter III ie., Disclosure of
Trading by Insider, deals with disclosure requirement. which are as follows
Regulations 6 :- General Provision68
(1) Every public disclosure under this Chapter shall be made in such form as may be specified.
(2) The disclosures to be made by any person under this Chapter shall include those relating to
trading by such person’s immediate relatives, and by any other person for whom such person
takes trading decisions.
(3) The disclosures of trading in securities shall also include trading in derivatives of securities
and the traded value of the derivatives shall be taken into account for purposes of this Chapter:
Provided that trading in derivatives of securities is permitted by any law for the time being in
force.
(4) The disclosures made under this Chapter shall be maintained by the company, for a minimum
period of five years, in such form as may be specified.
67
68
61
It is intended that disclosure of trades would need to be of not only those executed by the person
concerned but also by the immediate relatives and of other persons for whom the person
concerned takes trading decisions.
These regulations are primarily aimed at preventing abuse by trading when

in possession of unpublished price sensitive information and therefore, what matters is whether
the person who takes trading decisions is in possession of such information rather than whether
the person who has title to the trades is in such possession.
Regulations 7:- Disclosures by certain persons.69
(1) Initial Disclosures.
(a). Every promoter, key managerial personnel and director of every company whose securities
are listed on any recognized stock exchange shall disclose his holding of securities of the
company as on the date of these regulations taking effect, to the company within thirty days of
these regulations taking effect.
(b). Every person on appointment as a key managerial personnel or a director of the company or
upon becoming a promoter shall disclose his holding of securities of the company as on the date
of appointment or becoming a promoter, to the company within seven days of such appointment
or becoming a promoter.
(2) Continual Disclosures.
(a). Every promoter, employee and director of every company shall disclose to the company the
number of such securities acquired or disposed of within two trading days of such transaction if
the value of the securities traded, whether in one transaction or a series of transactions over any
69
62
calendar quarter, aggregates to a traded value in excess of ten lakh rupees or such other value as
may be specified;
(b). Every company shall notify the particulars of such trading to the stock exchange on which
the securities are listed within two trading days of receipt of the disclosure or from becoming
aware of such information.
Explanation. — It is clarified for the avoidance of doubts that the disclosure of the incremental
transactions after any disclosure under this sub-regulation, shall be made when the transactions
effected after the prior disclosure cross the threshold specified in clause (a) of sub-regulation (2)
(3) Disclosures by other connected persons.70
Any company whose securities are listed on a stock exchange may, at its discretion require any
other connected person or class of connected persons to make disclosures of holdings and trading
in securities of the company in such form and at such frequency as may be determined by the
company in order to monitor compliance with these regulations.
This is an enabling provision for listed companies to seek information from those to whom it has
to provide unpublished price sensitive information. This provision confers discretion on any
company to seek such information.
For example, a listed company may ask that a management consultant who would advise it on
corporate strategy and would need to review unpublished price sensitive information, should
make disclosures of his trades to the company.
Chapter IV of the SEBI ( Prohibition of Insider Trading ) Regulataion,2015 also talks about the
Codes Of Fair Disclosure and Conduct.
Regulation 8 Code of Fair Disclosure.71
70
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(1) The board of directors of every company, whose securities are listed on a stock exchange,
shall formulate and publish on its official website, a code of practices and procedures for fair
disclosure of unpublished price sensitive information that it would follow in order to adhere to
each of the principles set out in Schedule A to these regulations, without diluting the provisions
of these regulations in any manner.
This provision intends to require every company whose securities are listed on stock exchanges
to formulate a stated framework and policy for fair disclosure of events and occurrences that
could impact price discovery in the market for its securities. Principles such as, equality of
access to information, publication of policies such as those on dividend, inorganic growth
pursuits, calls and meetings with analysts, publication of transcripts of such calls and meetings,
and the like are set out in the schedule.
(2) Every such code of practices and procedures for fair disclosure of unpublished price sensitive
information and every amendment thereto shall be promptly intimated to the stock exchanges
where the securities are listed.
64
Chapter – 4
JUDICIAL TRENDS IN INDIA AND UNITED STATES OF AMERICA
WITH REFERENCE TO INSIDER TRADING
In this chapter an endeavor has been done to understand the concept of Insider trading in India
and Unites States of America by the judicial interpretation. As a legal system doesn’t develop on
its own the law makers and the judiciary helps this process,
 Hindustan Lever Ltd v. SEBI72
FACTS
This was one of the first cases where SEBI took action on grounds of insider trading. Hindustan
Lever Ltd. (HLL) and Brook Bond Lipton India Ltd. (BBLIL) controlled by Unilever, Inc. UK
were both under the same management. HLL purchased 0.8 million shares of BBLIL from UTI(
Unit Trust of India) in March 1996 two weeks prior to the public announcement of the HLL and
BBLIL merger. Post announcement, the price of BBLIL’s shares shot up thereby causing losses
to UTI.
Question of law
Whether the information with the HLL was price sensitive information?
Judgement
On 4 August 1997 AEBI issued a show cause notice to HLL claiming that there is a prima facie
evidence of company indulging in Insider Trading, through the use of Unpublished Price
Sensitive Information prior to its merger with Brooke Bond Lipton India Limited(BBLIL). SEBI
found HLL guilty of insider trading because it bought the shares from Unit Trust of India with
full knowledge that two sister concern were going to merge. Since it bought the shares without
the merger was formally announced. SEBI, held that HLL was using the price sensitive
information to trade, and was guilty of insider trading. SEBI directed HLL to pay Unit Trust Of
India 34 million as compensation, and also initiated criminal proceeding against the five
72
(1998 SCL 311)
65
common director of HLL and BBILL. According to SEBI, HLL had full knowledge of the
impending merger and misused the unpublished price sensitive information to its advantage.
However, the Securities Appellate Tribunal reversed the order on

the ground that the information was not price-sensitive as it was reported in the media and,
therefore, was public knowledge. As a result of this case, SEBI amended the Regulations to
specifically provide that speculative reports in the media (print or electronic) would not be
treated as publication of price sensitive information.
 Rakesh Agarwal v. SEBI73
FACTS –
Mr. Rakesh Agarwal was the managing director of ABS Industries Ltd. (“ABS”), a listed Indian
company. Bayer AG (“Bayer”) is a German company that acquired the control of ABS in
October, 1996. Prior to such acquisition there were a series of negotiations between the
management of ABS and Bayer. Mr. Rakesh had visited the officials of Bayer in Germany
between September 6, 1996 and September 8, 1996.
During that meeting, the decision to proceed with the transaction was arrived at but Bayer
management had stipulated a condition that the acquisition would be subject to Bayer being able
to acquire a minimum of 51% in ABS. During the period between September 9, 1996 and
October 8, 1996, Mr.I.P.Kedia, Rakesh’s brother-in-law had acquired 1,82,500 shares of ABS
using the funds provided by Mr. Rakesh. On September 29, 1996 Rakesh and his legal financial
advisors went to Germany again to finalise the modalities of the transaction. On October 1, 1996,
a communication was shared with BSE NSE disclosing the details of the transaction. Thereafter,
the definitive agreements were entered into and the transaction between ABS and Bayer was
consummated. SEBI ruled that Mr. Rakesh had indulged in insider trading through Mr. I.P.Kedia
during the period between September 9, 1996 and October 1, 1996, when the information about
the deal with Bayer was a UPSI. SEBI also directed Mr. Rakesh to deposit INR 34,00,000 in the
investor protection funds of the various stock exchanges involved to compensate for the losses
that may be suffered by the shareholders of ABS at a later point of time. SEBI also ordered the
73
(2004) 1 Comp.LJ 193 SAT
66
initiation of adjudication proceedings against Mr. Rakesh under Section 15I read with Section
15G of SEBI Act. Mr. Rakesh challenged the SEBI order on the following grounds:
 Media carried reports on the deal with Bayer even before October 1, 1996 and therefore,
the information was not UPSI when Mr. I.P. Kedia had acquired the shares of ABS.
 Rakesh had caused Mr.I.P.Kedia to acquire the shares only to ensure that Bayer gets a
minimum of 51% in ABS and the deal goes through. He was acting only in the best
interest of ABS there was no personal gain or benefit for him.
Questions of Law
a. Whether the information about the deal with Bayer was UPSI prior to October 1, 1996?
b. Whether personal gain and mens rea are critical constituents of the offence of insider
trading under the Insider Trading Regulations?
c. Whether SEBI is empowered to direct Mr. Rakesh to deposit INR 34,00,000 in the
investor protection funds under Regulation II of the Insider Trading Regulations?
Judgment
Based on the allegations of purchase of shares prior to the announcement of Bayer’s acquisition
of ABS Industries, SEBI conducted investigation and initiated action against Rakesh Agarwal.
Upon investigation, SEBI found that a huge chunk of the shares were bought by certain brokers
on behalf of one Mr. Kedia, the brother-in-law of Rakesh Agarwal. The purchases made by Mr.
Kedia were done on behalf of Mr. Rakesh Agarwal.
In view of the foregoing, SEBI held Rakesh Agarwal liable for insider trading.
The reasoning given by SEBI was that when the shares were purchased on or after 9 September
1996, the information regarding merger was not available to persons who had sold these shares
to Mr. Kedia. According to SEBI, Mr. Kedia/ Rakesh Agarwal were the insiders and were under
a fiduciary duty towards the sellers. Therefore, SEBI held that the purchase made by Rakesh
Agarwal of 1,82,500 shares was in violation of Regulation 3 (i) of Insider Regulations. Further,
SEBI, vide its order, directed Rakesh Agarwal to deposit a sum of Rs.34,00,000 with the investor
protection fund of BSE and NSE to compensate the investors who may come forward at a later
67
stage seeking compensation for the loss incurred by them in selling at a price lower than the offer
price.
 Gujarat NRE Mineral Resources Ltd. v. SEBI74
FACTS
FCGL Industries Ltd. (“FCGL”) is a listed core investment company that held 17.7% of the total
paid up equity capital of the Gujarat NRE Coke Ltd. (“Coke Company”).
In the board meeting of FCGL dated July 4, 2005, the following decisions were taken:
• FCGL would acquire certain coal mining leases in Australia though a special purpose vehicle
incorporated in Australia under the name Gujarat NRE FCGL Pty Ltd. (joint venture between the
Coke Company and FCGL).
• To meet the funding requirements for the acquisition of the mining leases, FCGL decided to
dispose of part of its investments in the Coke Company.
The said meeting was attend by G.L.Jagatramka and Shri A.K.Jagatramka who were the
chairman and director, respectively of FCGL. Soon after the meeting, the BSE was informed of
FCGL’s decision to acquire mining leases in Australia and of the high costs involved, however,
the decision to dispose of its investments in the Coke Company was not disclosed.
Pursuant to the board’s decision, FCGL’s shares in the Coke Company were sold between July
18, 2005 and September 29, 2005. It was observed that Matangi Traders and Investors Ltd.
(“Matangi”) and Marley Foods Pvt. Ltd. (“Marley”), two companies had bought the shares of
FCGL during the period between September 5, 2005 and September 24, 2005 and during such
period, G.L.Jagatramka and A.L.Jagatramka who were the chairman and director respectively of
FCGL, were also the directors of Matangi and Marley.
It was alleged that the decision by FCGL to dispose of its investments in the Coke Company was
UPSI when Matangi and Marley had acquired the shares of FCGL and such acquisition was on
the basis of the UPSI. The share price of the shares of FCGPL had risen during the period when
Matangi and Marley had acquired the shares of FCGL. It was also alleged that the failure by
74
Appeal No. 207 of 2010: Order Dated November 11,2011
68
FCGPL to disclose its decision to sell part of the shareholding in the Coke Company violated
paragraph 2.1 of the Disclosure Code which obligates listed companies to disclose PSI to the
stock exchanges on a continuous and immediate basis.
Question of law
Whether the decision by an investment company to sell its shareholding / investment in a

company and subsequent sale would amount to PSI that needs to be disclosed to the public? If
yes, whether trading in securities of FCGPL by Matangi and Marley was based on such UPSI.
Judgment
SAT clarified that for any information to be PSI, it should relate to the company and when
disclosed it should be likely to affect the price of the securities of a company. The definition of
PSI under the Insider Trading Regulations clarify that the information on disposal of the whole
or substantial part of the undertaking is PSI. It had to be determined if part sale of investment
would amount to disposal of the whole or substantial part of the undertaking. FCGL is an
investment company whose business is only to make investments in the securities of other
companies. It earns income by buying and selling securities held by it as investments. This being
the normal activity of an investment company, every decision by it to buy or sell its investments
would have no effect, much less material, on the price of its own securities. If that were so then
no investment company would be able to function because every time it would buy or sell
securities held as investments, it would have to make disclosures to the stock exchange(s) where
its securities are listed.
Also, disposal of all or part of an undertaking would mean a company deciding to dispose of the
whole or substantial part of its business activity or project in which it is engaged. The word
‘undertaking’ cannot possibly mean investments held by an investment company which are its
stock-in-trade. To illustrate, if a manufacturing company were to dispose of the whole or a
substantial part of its manufacturing unit, it would be an event which would materially affect the
price of its securities and according to the explanation it would be price sensitive requiring the
company to make the necessary disclosures at the earliest. On the other hand, if a manufacturing
company were to sell its products or buy raw materials, it would be a part of its normal business
activity which would not be price sensitive and not required to be disclosed.
69
Therefore, the decision by an investment company to sell its shareholding in another company is
only a decision in the ordinary course of its business and not a UPSI. SAT clarified that the price
rise in the shares of FCGPL and trading by Matangi and Marley in the securities of FCGPL was
based on the acquisition of mining leases in Australia which was already disclosed and not on the
basis of the decision to sell shareholding in the Coke Company. The Appeal was allowed and the
impugned order of SEBI was set aside.
 Chandrakala v. SEBI75
FACTS
The board meeting of M/s Rasi Electrodes Ltd. (“REL”) was scheduled to be held on June 30,
2007, in which meeting the financials of REL and the rate of dividend for the financial year were
to be finalized. The agenda for the board meeting was finalized between June 19 to 21, 2007 and
the agenda was discussed internally between Mr. B. Popatlal Kothari, chairman and managing
director and Mr. G Mahavirchand Kochar, whole time director of the company. Hence, during
this period, information about the financial results and dividends constituted UPSI.
Similarly, the agenda for the board meeting to be held on July 25, 2007, inter alia, including
issuance of shares was discussed internally during the period between July 15, 2007 to July 17,
2007 and the agenda paper was circulated on July 17, 2007. Therefore, the period from July 15,
2007 to July 17, 2007 was a period when the information about the issue of bonus shares was
UPSI. Mrs. Chandrakala, who is the accused in the matter, happens to be the wife of the
promoter of REL, Mr. Uttam Kumar Kothari, who is the brother of Mr. B. Popatlal Kothari, the
chairman and managing director of REL. She had traded in the scrip of the company when the
information on the bonus issue and the financial results were UPSI. Her transactions were noted
by the SEBI Board, as the Board conducted investigations into the rise in price and volume in the
scrip of the company during the period 8th June, 2007 to 20th July, 2007.
It was clear that at the time of the trading, Mrs. Chandrakala was an ‘insider’ and the
information on bonus issuance and the financial results were UPSI. However, a defense was
taken in favour of the accused that offense of insider trading will only be committed if the
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Appeal No.209 of 2011; order Dated January 31,2012
70
trading is undertaken on the basis of UPSI and mere possession of any UPSI at the time of
trading will not result in insider trading.
Question of Law
Regulation 3 prohibits from trading in securities when they are in possession of any UPSI. No
insider shall either on his own behalf or on behalf of any other person, deal in securities of a
company listed on any stock exchange when in possession of any unpublished price sensitive
information, prescribes Regulation 3(1) of the Insider Trading Regulations. Hence, it had to be
determined whether mere possession of any UPSI by the insider at the time of transaction would
result in insider trading or is it necessary that the trading was undertaken on the basis of or in
reliance of the UPSI that is in the possession.
Judgment
The prohibition contained in Regulation 3 of the Insider Trading Regulations apply only when
an insider trades or deals in securities on the basis of any UPSI and not otherwise. It means that
the trades executed should be motivated by the information in the possession of the insider. If an
insider trades or deals in securities of a listed company, it may be presumed that he / she traded
on the basis of UPSI in his / her possession unless contrary to the same is established. The
burden of proving a situation contrary to the presumption mentioned above lies on the insider. If
an insider shows that he / she did not trade on the basis of UPSI and that he / she traded on some
other basis, he / she cannot be said to have violated the provisions of Regulation 3 of the Insider
Trading Regulations.
SAT has in a way diluted the strict prohibition under Regulation 3 by holding that insider trading
will occur only when the insider is trading on the basis of insider information and on account of
mere possession of UPSI when trading in securities. However SAT has laid down a presumption
that the insider would have traded on the basis of the UPSI that it holds unless proved otherwise
by the insider. In light of this legal principle, Mrs. Chandrakala had to factually establish before
SAT that its trading in securities was not motivated by or on the basis of the UPSI that it held.
SAT examined the following facts to conclude that Mrs. Chandrakala had not violated
71
Regulation 3 of the Insider Trading Regulations as she had not traded in securities on the basis of
UPSI
: i. Mrs. Chandrakala used to trade regularly in the shares of REL in the normal course of
business. Mrs. Chandrakala had not only traded in securities when she had access to UPSI but
also prior to and after such period
. ii. Declaration of financial results, dividend and bonus are positive UPSI which, on becoming
public is likely to cause a positive impact on the price of the scrip of REL. Any person who is
privy to such positive UPSI will only tend to purchase shares and not sell the shares prior to the
UPSI becoming public. This was not so in the case under consideration. The trading pattern of
Mrs. Chandrakala shows that she not only bought but also sold the shares when she had access to
UPSI.
 Wipro finance ltd v SEBI76
FACTS
In a recent case where The Securities and Exchange Board of India conducted an examination
into the alleged irregularity in the trading in the shares of Wipro Ltd. and into possible violation
of the provisions of Securities and Exchange Board of India Act, 1992 and various rules and
regulations made there under for the period November 29, 2012 to December 03, 2012
The examination inter-alia revealed that the shares of WPL are listed on Bombay
Stock Exchange Limited (BSE) and National Stock Exchange Limited (NSE). Mr. Rajat Mathur
one of the designated employee of WPL had violated provisions of regulation 13(4) read with
13(5) of SEBI (Prohibition of Insider Trading) Regulations, 1992.
ISSUES
a. Whether Mr. Rajat Mathur had violated the provisions of regulation 13(4) read with 13(5) of
PIT Regulations, 1992?
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Adjudication Order No. ASK/RGA/AO/73/2014
72
b. Does the violation, if any, attract monetary penalty under section 15A (b) of SEBI Act, 1992?
c. If so, what would be the monetary penalty that can be imposed taking into consideration the
factors mentioned in section 15J of SEBI Act, 1992?
Judgement
In this case SEBI has found that Mr. Rajat Mathur had violated the regulation 13(4) read with
13(5) of Prohibition of Insider Trading Regulations,1992.As according to the regulations any
person who is a director or officer of a listed company has to disclose to the company and to the
stock exchange where the securities are listed within two working days, if change in holding of
such person from the last disclosure exceeds Rs 5 Lakh in value, or 25,000 shares or 1% of the
total shareholding or voting rights whichever is lower.
In the instant case, as a result of the aforesaid transactions done by Mr.

Rajat Mathur there has been a change in his shareholding, which exceeded the benchmark limit
of Rs 5 lakh and he has not disclosed about this to the Company. SEBI has also imposed a
monetary fine of Rs 5,00,000/- on Rajat Mathur
 Reliance Industries Limited vs. Securities and Exchange Board of India (“SEBI”)77
FACTS
In this case The Reliance Industries Limited in connivance with other entities related/connected
to it took short positions in the Future and Options (“F&O”) Segment of the National Stock
Exchange of India Ltd. (“NSE”) in the scrip of RPL. SEBI had alleged that prior to RIL’s merger
with Reliance Petroleum Limited (“RPL”), RIL had short-sold its stake of approx.20 crore shares
in RPL to prevent a slump in stock in the F & O segment and thus, had contravened the
provisions of SEBI Act, 1992 (“Act”), the Securities Contracts Regulation Act, 1956 and the
SEBI (contravention of Fraudulent and Unfair Trade Practices Relating to Securities Market)
Regulations, 2003 (“FUTP Regulations”).
Judgement
77
Adjudicating Order No. EAD-3/AO/DRK/JP/573?117of 2014
73
The Securities and Exchange Board of India has imposed a fine of Rs 11 crore on Reliance
Industries (RIL) for non-disclosure of diluted earnings per share (DEPS) after the promoters
were issued warrants in 2007, the latest in a series of regulatory actions against India's largest
private sector company by revenues
“It may be concluded that by virtue of RPIL having control over IPCL, it was reasonably
expected to have access to unpublished price sensitive information of IPCL. RPIL being the
promoter having control over the company holding 46 per cent shares of IPCL is inherently
expected to have access to price sensitive information. The company being in such a position it is
unacceptable that it was not aware of such major/ important decisions of the company IPCL," the
Sebi order said.
The findings of the investigation led to the allegation that RPIL was in the possession of
unpublished price sensitive information while trading in the scrip of IPCL prior to announcement
of declaration of interim dividend and amalgamation of IPCL with Reliance Industries which
resulted in violation of regulation 3 of SEBI (Prohibition of Insider Trading) Regulations, 1992.
74
Unites States of America
The insider trading laws have evolved together with other regulatory measures implemented by
the global markets from time to time. The U.S.is the two country that have a well developed
insider trading regulatory mechanism. Many of the global economies have borrowed ideas from
the united states of America for regulatory frameworks. Further, as the U.S. has implemented
the measures to regulate insider trading much prior to other global economies, so it becomes
important to study the role played by US Judiciaary in evolving the Insider Trading laws and
regulations.
In the U.S., there have been a few common law cases of insider trading in the beginning of 20th
century, even before the federal securities laws came into existence. The plaintiff-shareholder in
those cases relied on the extended version of the ‘tort of misrepresentation’ to hold the corporate
insiders liable for the material non-disclosures of corporate information while indulging in
trades.78
In Strong v. Repide79 a U.S. shareholder of a Philippines based sugar company was induced to
sell her shares to a person who was the company’s general manager (unknown to her) and
director. The buyer who was an insider knew that the company was going to enter into a very
profitable contract with the Philippine Government. The U.S. Supreme Court ordered the
rescission of the sale of shares under the ‘special facts’ doctrine. Considering that the general
manager did not have an affirmative duty to disclose all material information to the seller, it was
78
Available at http://shodhganga.inflibnet.ac.in/bitstream/10603/13173/10/10_chapter%202.pdf (Last Visited on
April 22, 2015)
79
213 U.S. 419 (1909)
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difficult to impose a tort liability on the general manager. However, the court based its decision
on the special facts doctrine because the general manager was an insider and the nature of the
information compelled a disclosure.
In 1961, with the decision in Cady, Roberts & Co59 , the SEC for the first time declared that
insider trading in the impersonal market violates Rule 10b-5. Until this decision, the courts had
applied the common law principles of, deceit or fraud as the basis for liability in insider trading
cases. Until this decision, liability for fraud was imposed on the insiders who directly traded
based on the material price sensitive information.
In the case of Cady, Roberts,80 an important issue arose regarding the liability of
a person who is not an insider, but is trading in the shares of a particular company, based on the
information obtained from a source within the company whose shares are being traded. The SEC
had observed that there is no fiduciary obligation on the part of such class of persons who are not
insiders but trade for an insider based on the information received from the insider. Therefore, to
fix the liability for such corporate outsider, the SEC looked for a better explanation to bring such
class of persons within the ambit of Rule 10b-5. The modern federal insider trading prohibition
can be said to have begun with the Securities Exchange Commission’s enforcement action in the
Cady, Roberts Case.
The reasoning given by the court in this case is as follows:
“Analytically, the obligation for not to engage in insider trading rests on two principal
elements: first, the existence of a relationship giving access, directly or indirectly, to information
intended to be available only for a corporate purpose and not for the personal benefit of anyone,
and second, the inherent unfairness involved where a party takes advantage of such information
knowing it is unavailable to those with whom he is dealing. In considering these elements under
the broad language of the anti-fraud provisions we are not to be circumscribed by fine
distinctions and rigid classifications. Thus, it is our task here to identify those persons who are in
a special relationship with a company and privy to its internal affairs, and thereby suffer
correlative duties in trading in its securities. Intimacy demands restraint lest the uninformed be
exploited.”
80
Re Cady, Roberts & Co 40 S.E.C 907 (1961)
76
Based on the foregoing reasoning and applying the broad rules of interpretation, the SEC held
that the broker traded while in possession of non-public information he had received from the
director of the company and had violated Rule 10b-5.
Cady, Roberts also involved the issue relating to tipping. The SEC had
observed that in this case an insider who possesses confidential information but, does not himself
trade, and informs or tips someone else who does trade based on the information is also liable
under Rule 10b-5. Further, the SEC also formulated the theory of ‘abstain or disclose’ in this
case. The rule provided that the temporary or the constructive insider, who possesses material
non-public information, should disclose such information before trading or abstain from trading
until the information is publicly disseminated.
U.S. federal court in the case of Securities Exchange Commision v. Texas Gulf Sulphur
Company81 supported the ruling of the SEC in Cady, Roberts Case . The court observed that the
federal prohibition on insider trading was intended to ensure that all investors trading on
impersonal stock exchanges had equal access to material information.
In the TGS Case, a mining corporation began aerial surveys of

an area near Timmins, Ontario and found evidences of ore deposits. TGS began ground surveys
of the area and found significant deposits of copper and zinc. TGS’ president instructed the
exploration group to maintain strict confidentiality, even to the point of withholding the news
from other TGS’ directors and employees. TGS finally announced its discovery in a press
conference after a few months when the discovery of ore was confirmed. During this period, a
number of TGS insiders bought stock and/or options on the TGS’ stock. Others tipped off the
outsiders and some others accepted stock options from the company’s board of directors without
informing the directors of the discovery. After TGS’ disclosure, the company’s stock price per
share rose tremendously and the insiders and the tippees had made significant profits.
As the SEC sued the insiders for violating Rule 10b-5, the court while
ruling in SEC’s favor, observed that no person should be allowed to trade using the non-public
information as this will amount to fraud committed on all other buyers and sellers in the market.
Further, the Second Circuit court held that if an insider has material non-public information, Rule
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401 F.2d at 848
77
10b-5 requires the insider to either disclose such information before trading or abstain from
trading until the information has been disclosed. Thus, the rule of “disclose or abstain” was
recognized by a court for the first time. The court further stated that the prohibition under Rule
10b-5 applies to anyone who has direct or indirect access to the confidential information and
knows that the information is unavailable to the investing public.
In Chiarella Case82, one of the issues raised was relating to the applicability of disclose or
abstain rule. The U.S. Supreme Court rejected the equal access policy that was laid down in
TGS. The court made clear that liability could be imposed only if the defendant was subject to a
duty of disclosure, arising out of a fiduciary relationship between the inside trader and the
persons with whom he trades.
According to the facts of this case, Vincent Chiarella was an employee of a

printing press, Pandick Press. While preparing the tender offer disclosure materials for a
customer, Pandick Press used codes to conceal the names of the companies involved. But
Chiarella broke the codes and misappropriated the material information of Pandick’s customer.
He purchased the target company’s shares before the bid was formally announced, and sold the
shares for considerable profits after the announcement of the bid. Chiarella was booked and
convicted of violating Rule 10b-5 by trading on the basis of material non-public information.
The Second Circuit affirmed the conviction, applying the TGS Case’s principle of equal access
to information based on the ‘disclose or abstain’ rule. Applying this principle, Chiarella was held
liable because he had superior access to information than those with whom he traded.
The U.S. Supreme Court, however, reversed this decision and rejected the
notion that Rule 10 b-5 was intended to ensure to all investors equal access to information. The
court did not affirm Chiarella’s conviction on the ground that Chiarella did not have any
fiduciary duty towards the printing press’ customer or the sellers of the shares and in turn, did
not have any obligation to disclose the material non-public information prior to trading. Thus, the
Chiarella Case made clear that disclose or abstain rule is not triggered merely because the trader
possesses material non-public information. In this case the court limited the scope of insider
82
U.S. v. Chiarella 558 F.2d 1368
78
trading prohibition by not attributing the liability of duty to disclose on an outsider who used
non-public material information and traded based on such information for personal gain.
The issue of liability of outsiders (tippees) was first examined by the SEC in
an administrative proceeding in the case of Securities Exchange Commission v. Investors
Management Company . In this case, an action was taken by the SEC against a number of
institutional investors who sold the shares of Douglas Aircraft Company, after learning about a
downward revision in the company’s earnings estimates. The source of this negative information
was Merryl Lynch Pierce Fenner and Smith’s investment adviser, who in turn had obtained the
information in the capacity of Douglas’ underwriter for the sale of Douglas’ debentures.
In this case, the SEC came to the conclusion that the tippee must be held liable only
when the tippee knows or has reason to know that the information in question is non-public and
obtained “improperly, by selective revelation or otherwise.” The SEC held all the investors liable
and regarded them as tippees who knowingly traded in Douglas’ stocks based on the non-public
information received from the tipper. Therefore, the SEC ruled that the tippees were liable for
fraud under the Rule 10b-5, similar to an insider’s liability under the Rule 10b-5, and there was
no need for the tippee to establish a special relationship with the company.
The leading case involving the liability of a tippee was Dirks v. SEC83
In this case, Raymond Dirks, an officer of a New York broker-dealer

firm specializing in investment analysis of insurance company securities, received information
from a former officer of Equity Funding of America that EFA’s assets were grossly overstated as
a result of fraudulent corporate practices. Dirks investigated the matter by contacting various
employees of EFA who corroborated the fraud charges. Although Dirks and his firm did not own
or trade in EFA’s securities, Dirks discussed the information about EFA’s fraudulent overstating
of assets with his clients and investors. Thereafter, some of these clients and investors sold their
holdings in EFA. SEC initiated action against Dirks for aiding and abetting violations of the
federal securities laws including Section 10 b of the 1934 Act and Rule 10b-5 and held Dirks
liable for fraud.
83
Dirks v. SEC 463 U.S.646 (1983)
79
However, the Supreme Court reversed the decision and ruled that Dirks
had not violated Rule 10b-5. The Supreme Court held that a duty to disclose arises from the
fiduciary relationship between the parties and not merely from one's ability to acquire
information because of his position in the market. The court stressed that imposing a duty to
disclose solely because one has received the inside information would inhibit market analysts
from ferreting out important information about securities.
Shortly after the Dirks decision, the concept of “temporary insider” was applied in
the case of Securities Exchange Commission v. Lund84 In this case, Lund was the President
and Chairman of the board of Verit Industries. Horowitz was another director of Verit, who was
the Chairman and the President of the P&F Industries. Horowitz asked Lund if he would be
interested in participating in a joint venture with P&F Industries to acquire a Las Vegas
gambling casino, to which Lund agreed. Thereafter, Lund purchased a significant number of
shares of P&F Industries. The subsequent announcement of the joint-venture enhanced the price
of the P&F Industries to double and Lund made substantial profit by selling the shares at a higher
price.
When Horowitz was charged for fraud for disclosing the information to
Lund, one of the contentions before the court was that Horowitz had not violated any fiduciary
duty by disclosing the information regarding the joint-venture to Lund, as he had merely
discussed about a prospective transaction while discharging his official duties. Further, as
regards Lund’s liability, Lund could not be held liable as a tippee because the tipper was not held
liable.
However, the court stated that the scope of the insider concept is flexible
and is not limited to officers, directors and controlling shareholders of a company. Insiders can
include any person who is in a special relationship with the company and privy to its internal
affairs. Based on this principle, the court regarded Lund to be a “temporary insider” of P&F
Industries and held him liable for fraud for trading on the basis of the information concerning the
joint-venture.
84
SEC v. Lund [Current] Fed.Sec.L.Rep (CCH) 99495 (C.D.Cal.1983)
80
It appears that for a long time, the U.S. courts were unclear as to the applicability of
the various theories and principles relating to insider trading, when dealing with the cases of
insider trading and deciding the liabilities in such cases. The lower courts in the U.S., while
deciding the cases of insider trading, had followed a secondary theory of liability, i.e., the
misappropriation theory which was suggested by Justice Stevens in the case of Chiarella, to
cover the cases where the abstain or disclose theory was inapplicable.
Another rule i.e.Rule 14e-3 was first applied by the Supreme Court in the O’Hagan Case85 in
1997. The decision focuses on the deceptive manner of obtaining the non-public information
rather than any uniqueness of position. The facts of the case involved an attorney who traded
securities of a target company although the attorney's law firm represented the bidder. According
to the court, the breach of a duty of loyalty or the confidentiality by a fiduciary, which deprives a
principal of the exclusive use of confidential information, coupled with the self serving use of
that information, constituted a violation of Rule 10b-5 and the Rule 14e-3.
Although the defendant in O'Hagan was held to have violated both Rules 14(e)-3 and
10b-5, it is unclear whether this decision endorsed the SEC's view that neither scienter nor a
breach of fiduciary duty is required for liability under Rule 14(e)-3.
In the mid 1980s, the Levine Boesky case attracted a lot of public attention. Ivan
Frederick Boesky, a stock trader in the US, was convicted for insider trading and making illegal
profits in a Wall Street insider trading scandal.
Although the SEC had succeeded in enforcement of the insider trading regulations
in the Boesky Case, the pressure to respond to a series of discrete problems under the law still
continued. As a result, on 19 November 1988, the U.S. President signed the legislation known as
Insider Trading and Securities Fraud Enforcement Act of 1988. The ITSFEA was an attempt to
provide strength to the judicial and administrative initiatives which sought to overcome the
restrictiveness of Chiarella and Dirks. Under the ITSFEA, the criminal penalties were further
enhanced for insider trading, private rights of actions were provided, and new responsibilities
were imposed on those who employ or control insider traders or tippers.
85
United States v. O’Hagan 521 U.S.642, (1997)
81
On 23 October 2000, the SEC formally adopted the Regulation Fair Disclosure
under the provisions of Sections 13(a) and 15(d) of the Exchange Act, through newly inserted
Rule 100 of the Exchange Act to prohibit the selective disclosure of material non-public
information to the analysts and the major institutional stockholders, etc., prior to releasing it to
the public. This rule prohibits the companies from revealing market-sensitive information to
Wall Street analysts and large shareholders without a simultaneous release to the general public.
Thus, this was another attempt by the SEC to provide a "level playing field" for the investors by
promoting full and fair disclosure of the material non-public information.
Prior to the Regulation FD, the prohibition against insider trading was based
on the rule of ‘fair disclosure’ and was enforced by the SEC through their decisions in Cady
Roberts & Co , and later in Texas Gulf Sulphur Co by extending the ‘parity of information’
theory. However, in the decisions of both Chiarella and Dirks , the court narrowed the scope of
Rule 10b-5 liability and relied on the fiduciary duty or relationship of trust between the parties.
The courts while rejecting the liability in ‘selective disclosure’ cases, questioned the formulation
by SEC of future regulations and warned against the adoption of ‘parity of information’ theory
absent any specific congressional intent. The U.S. Supreme Court reasoned that the duty to
disclose arises from the relationship between the parties and not merely from one’s ability to
acquire information because of his position in market.
82
CHAPTER - 5
5. JUDUCIAL PRONOUNCEMENTS
CASE 1 HINDUSTAN LEVER LTD V. SEBI86
Facts
This was one of the first cases where SEBI took action on grounds of insider trading. Hindustan
Lever Ltd. (HLL) and Brook Bond Lipton India Ltd. (BBLIL) controlled by Unilever, Inc. UK
were both under the same management. HLL purchased 0.8 million shares of BBLIL from UTI
(Unit Trust of India) in March 1996 two weeks prior to the public announcement of the HLL and
BBLIL merger. Post announcement, the price of BBLIL’s shares shot up thereby causing losses
to UTI.
Question of law
Whether the information with the HLL was price sensitive information?
Judgment
On 4 August 1997 AEBI issued a show cause notice to HLL claiming that there is a prima facie
evidence of company indulging in Insider Trading, through the use of Unpublished Price
Sensitive Information prior to its merger with Brooke Bond Lipton India Limited (BBLIL). SEBI
found HLL guilty of insider trading because it bought the shares from Unit Trust of India with
full knowledge that two sister concern were going to merge. Since it bought the shares without
the merger was formally announced. SEBI, held that HLL was using the price sensitive
information to trade, and was guilty of insider trading. SEBI directed HLL to pay Unit Trust of
India 34 million as compensation, and also initiated criminal proceeding against the five
common director of HLL and BBILL. According to SEBI, HLL had full knowledge of the
impending merger and misused the unpublished price sensitive information to its advantage.
86
(1998 SCL 311)
83
However, the Securities Appellate Tribunal reversed the order on the ground that the
information was not price-sensitive as it was reported in the media and, therefore, was public
knowledge. As a result of this case, SEBI amended the Regulations to specifically provide that
speculative reports in the media (print or electronic) would not be treated as publication of price
sensitive information.
CASE 2 RAKESH AGARWAL V. SEBI87
Facts –
Mr. Rakesh Agarwal was the managing director of ABS Industries Ltd. (“ABS”), a listed Indian
company. Bayer AG (“Bayer”) is a German company that acquired the control of ABS in
October, 1996. Prior to such acquisition there were a series of negotiations between the
management of ABS and Bayer. Mr. Rakesh had visited the officials of Bayer in Germany
between September 6, 1996 and September 8, 1996.
During that meeting, the decision to proceed with the transaction was arrived at but Bayer
management had stipulated a condition that the acquisition would be subject to Bayer being able
to acquire a minimum of 51% in ABS. During the period between September 9, 1996 and
October 8, 1996, Mr.I.P.Kedia, Rakesh’s brother-in-law had acquired 1, 82,500 shares of ABS
using the funds provided by Mr. Rakesh. On September 29, 1996 Rakesh and his legal financial
advisors went to Germany again to finalise the modalities of the transaction. On October 1, 1996,
a communication was shared with BSE NSE disclosing the details of the transaction. Thereafter,
the definitive agreements were entered into and the transaction between ABS and Bayer was
consummated. SEBI ruled that Mr. Rakesh had indulged in insider trading through Mr. I.P.Kedia
during the period between September 9, 1996 and October 1, 1996, when the information about
the deal with Bayer was a UPSI. SEBI also directed Mr. Rakesh to deposit INR 34, 00,000 in the
investor protection funds of the various stock exchanges involved to compensate for the losses
that may be suffered by the shareholders of ABS at a later point of time. SEBI also ordered the
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(2004) 1 Comp.LJ 193 SAT
84
initiation of adjudication proceedings against Mr. Rakesh under Section 15I read with Section
15G of SEBI Act. Mr. Rakesh challenged the SEBI order on the following grounds:
 Media carried reports on the deal with Bayer even before October 1, 1996 and therefore,
the information was not UPSI when Mr. I.P. Kedia had acquired the shares of ABS.
Rakesh had caused Mr.I.P.Kedia to acquire the shares only to ensure that Bayer gets a minimum
of 51% in ABS and the deal goes through. He was acting only in the best interest of ABS there
was no personal gain or benefit for him.
Questions of Law
d. Whether the information about the deal with Bayer was UPSI prior to October 1, 1996?
e. Whether personal gain and mens rea are critical constituents of the offence of insider
trading under the Insider Trading Regulations?
f. Whether SEBI is empowered to direct Mr. Rakesh to deposit INR 34, 00,000 in the
investor protection funds under Regulation II of the Insider Trading Regulations?
Judgment
Based on the allegations of purchase of shares prior to the announcement of Bayer’s acquisition
of ABS Industries, SEBI conducted investigation and initiated action against Rakesh Agarwal.
Upon investigation, SEBI found that a huge chunk of the shares were bought by certain brokers
on behalf of one Mr. Kedia, the brother-in-law of Rakesh Agarwal. The purchases made by Mr.
Kedia were done on behalf of Mr. Rakesh Agarwal.
In view of the foregoing, SEBI held Rakesh Agarwal liable for insider trading. The reasoning
given by SEBI was that when the shares were purchased on or after 9 September 1996, the
information regarding merger was not available to persons who had sold these shares to Mr.
Kedia. According to SEBI, Mr. Kedia/ Rakesh Agarwal were the insiders and were under a
fiduciary duty towards the sellers. Therefore, SEBI held that the purchase made by Rakesh
Agarwal of 1, 82,500 shares was in violation of Regulation 3 (i) of Insider Regulations. Further,
SEBI, vide its order, directed Rakesh Agarwal to deposit a sum of Rs.34,00,000 with the investor
protection fund of BSE and NSE to compensate the investors who may come forward at a later
85
stage seeking compensation for the loss incurred by them in selling at a price lower than the
offer price.
CASE 3 Gujarat NRE Mineral Resources Ltd. v. SEBI88
Facts
FCGL Industries Ltd. (“FCGL”) is a listed core investment company that held 17.7% of the total
paid up equity capital of the Gujarat NRE Coke Ltd. (“Coke Company”).
In the board meeting of FCGL dated July 4, 2005, the following decisions were taken:
• FCGL would acquire certain coal mining leases in Australia though a special purpose vehicle
incorporated in Australia under the name Gujarat NRE FCGL Pty Ltd. (joint venture between the
Coke Company and FCGL).
• To meet the funding requirements for the acquisition of the mining leases, FCGL decided to
dispose of part of its investments in the Coke Company.
The said meeting was attend by G.L.Jagatramka and Shri A.K.Jagatramka who were the
chairman and director, respectively of FCGL. Soon after the meeting, the BSE was informed of
FCGL’s decision to acquire mining leases in Australia and of the high costs involved, however,
the decision to dispose of its investments in the Coke Company was not disclosed.
Pursuant to the board’s decision, FCGL’s shares in the Coke Company were sold between July
18, 2005 and September 29, 2005. It was observed that Matangi Traders and Investors Ltd.
(“Matangi”) and Marley Foods Pvt. Ltd. (“Marley”), two companies had bought the shares of
FCGL during the period between September 5, 2005 and September 24, 2005 and during such
period, G.L.Jagatramka and A.L.Jagatramka who were the chairman and director respectively of
FCGL, were also the directors of Matangi and Marley.
It was alleged that the decision by FCGL to dispose of its investments in the Coke Company was
UPSI when Matangi and Marley had acquired the shares of FCGL and such acquisition was on
88
Appeal No. 207 of 2010: Order Dated November 11,2011
86
the basis of the UPSI. The share price of the shares of FCGPL had risen during the period when
Matangi and Marley had acquired the shares of FCGL. It was also alleged that the failure by
FCGPL to disclose its decision to sell part of the shareholding in the Coke Company violated
paragraph 2.1 of the Disclosure Code which obligates listed companies to disclose PSI to the
stock exchanges on a continuous and immediate basis.
Question of law
Whether the decision by an investment company to sell its shareholding / investment in a

company and subsequent sale would amount to PSI that needs to be disclosed to the public? If
yes, whether trading in securities of FCGPL by Matangi and Marley was based on such UPSI.
Judgment
SAT clarified that for any information to be PSI, it should relate to the company and when
disclosed it should be likely to affect the price of the securities of a company. The definition of
PSI under the Insider Trading Regulations clarify that the information on disposal of the whole
or substantial part of the undertaking is PSI. It had to be determined if part sale of investment
would amount to disposal of the whole or substantial part of the undertaking. FCGL is an
investment company whose business is only to make investments in the securities of other
companies. It earns income by buying and selling securities held by it as investments. This being
the normal activity of an investment company, every decision by it to buy or sell its investments
would have no effect, much less material, on the price of its own securities. If that were so then
no investment company would be able to function because every time it would buy or sell
securities held as investments, it would have to make disclosures to the stock exchange(s) where
its securities are listed.
Also, disposal of all or part of an undertaking would mean a company deciding to dispose of the
whole or substantial part of its business activity or project in which it is engaged. The word
‘undertaking’ cannot possibly mean investments held by an investment company which are its
stock-in-trade. To illustrate, if a manufacturing company were to dispose of the whole or a
substantial part of its manufacturing unit, it would be an event which would materially affect the
price of its securities and according to the explanation it would be price sensitive requiring the
company to make the necessary disclosures at the earliest. On the other hand, if a manufacturing
87
company were to sell its products or buy raw materials, it would be a part of its normal business
activity which would not be price sensitive and not required to be disclosed.
Therefore, the decision by an investment company to sell its shareholding in another company is
only a decision in the ordinary course of its business and not a UPSI. SAT clarified that the price
rise in the shares of FCGPL and trading by Matangi and Marley in the securities of FCGPL was
based on the acquisition of mining leases in Australia which was already disclosed and not on
the basis of the decision to sell shareholding in the Coke Company. The Appeal was allowed and
the impugned order of SEBI was set aside.
CASE 4 CHANDRAKALA V. SEBI89
Facts
The board meeting of M/s Rasi Electrodes Ltd. (“REL”) was scheduled to be held on June 30,
2007, in which meeting the financials of REL and the rate of dividend for the financial year were
to be finalized. The agenda for the board meeting was finalized between June 19 to 21, 2007 and
the agenda was discussed internally between Mr. B. Popatlal Kothari, chairman and managing
director and Mr. G Mahavirchand Kochar, whole time director of the company. Hence, during
this period, information about the financial results and dividends constituted UPSI.
Similarly, the agenda for the board meeting to be held on July 25, 2007, inter alia, including
issuance of shares was discussed internally during the period between July 15, 2007 to July 17,
2007 and the agenda paper was circulated on July 17, 2007. Therefore, the period from July 15,
2007 to July 17, 2007 was a period when the information about the issue of bonus shares was
UPSI. Mrs. Chandrakala, who is the accused in the matter, happens to be the wife of the
promoter of REL, Mr. Uttam Kumar Kothari, who is the brother of Mr. B. Popatlal Kothari, the
chairman and managing director of REL. She had traded in the scrip of the company when the
information on the bonus issue and the financial results were UPSI. Her transactions were noted
by the SEBI Board, as the Board conducted investigations into the rise in price and volume in the
scrip of the company during the period 8th June, 2007 to 20th July, 2007.
89
Appeal No.209 of 2011; order Dated January 31,2012
88
It was clear that at the time of the trading, Mrs. Chandrakala was an ‘insider’ and the
information on bonus issuance and the financial results were UPSI. However, a defense was
taken in favour of the accused that offense of insider trading will only be committed if the
trading is undertaken on the basis of UPSI and mere possession of any UPSI at the time of
trading will not result in insider trading.
Question of Law
Regulation 3 prohibits from trading in securities when they are in possession of any UPSI. No
insider shall either on his own behalf or on behalf of any other person, deal in securities of a
company listed on any stock exchange when in possession of any unpublished price sensitive
information, prescribes Regulation 3(1) of the Insider Trading Regulations. Hence, it had to be
determined whether mere possession of any UPSI by the insider at the time of transaction would
result in insider trading or is it necessary that the trading was undertaken on the basis of or in
reliance of the UPSI that is in the possession.
Judgment
The prohibition contained in Regulation 3 of the Insider Trading Regulations apply only when
an insider trades or deals in securities on the basis of any UPSI and not otherwise. It means that
the trades executed should be motivated by the information in the possession of the insider. If an
insider trades or deals in securities of a listed company, it may be presumed that he / she traded
on the basis of UPSI in his / her possession unless contrary to the same is established. The
burden of proving a situation contrary to the presumption mentioned above lies on the insider. If
an insider shows that he / she did not trade on the basis of UPSI and that he / she traded on some
other basis, he / she cannot be said to have violated the provisions of Regulation 3 of the Insider
Trading Regulations.
SAT has in a way diluted the strict prohibition under Regulation 3 by holding that insider trading
will occur only when the insider is trading on the basis of insider information and on account of
mere possession of UPSI when trading in securities. However SAT has laid down a presumption
that the insider would have traded on the basis of the UPSI that it holds unless proved otherwise
by the insider. In light of this legal principle, Mrs. Chandrakala had to factually establish before
SAT that its trading in securities was not motivated by or on the basis of the UPSI that it held.
89
SAT examined the following facts to conclude that Mrs. Chandrakala had not violated
Regulation 3 of the Insider Trading Regulations as she had not traded in securities on the basis
of UPSI:
: i. Mrs. Chandrakala used to trade regularly in the shares of REL in the normal course of
business. Mrs. Chandrakala had not only traded in securities when she had access to UPSI but
also prior to and after such period.
. ii. Declaration of financial results, dividend and bonus are positive UPSI which, on becoming
public is likely to cause a positive impact on the price of the scrip of REL. Any person who is
privy to such positive UPSI will only tend to purchase shares and not sell the shares prior to the
UPSI becoming public. This was not so in the case under consideration. The trading pattern of
Mrs. Chandrakala shows that she not only bought but also sold the shares when she had access
to UPSI.
CASE 5 Wipro finance ltd v SEBI90
Facts
In a recent case where The Securities and Exchange Board of India conducted an examination
into the alleged irregularity in the trading in the shares of Wipro Ltd. and into possible violation
of the provisions of Securities and Exchange Board of India Act, 1992 and various rules and
regulations made there under for the period November 29, 2012 to December 03, 2012
The examination inter-alia revealed that the shares of WPL are listed on Bombay Stock
Exchange Limited (BSE) and National Stock Exchange Limited (NSE). Mr. Rajat Mathur one of
the designated employee of WPL had violated provisions of regulation 13(4) read with 13(5) of
SEBI (Prohibition of Insider Trading) Regulations, 1992.
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Adjudication Order No. ASK/RGA/AO/73/2014
90
ISSUES
a. Whether Mr. Rajat Mathur had violated the provisions of regulation 13(4) read with 13(5) of
PIT Regulations, 1992?
b. Does the violation, if any, attract monetary penalty under section 15A (b) of SEBI Act, 1992?
c. If so, what would be the monetary penalty that can be imposed taking into consideration the
factors mentioned in section 15J of SEBI Act, 1992?
Judgement
In this case SEBI has found that Mr. Rajat Mathur had violated the regulation 13(4) read with
13(5) of Prohibition of Insider Trading Regulations,1992.As according to the regulations any
person who is a director or officer of a listed company has to disclose to the company and to the
stock exchange where the securities are listed within two working days, if change in holding of
such person from the last disclosure exceeds Rs 5 Lakh in value, or 25,000 shares or 1% of the
total shareholding or voting rights whichever is lower.
In the instant case, as a result of the aforesaid transactions done by Mr. Rajat Mathur there has
been a change in his shareholding, which exceeded the benchmark limit of Rs 5 lakh and he has
not disclosed about this to the Company. SEBI has also imposed a monetary fine of Rs
5,00,000/- on Rajat Mathur.
CASE 6 Reliance Industries Limited vs. Securities and Exchange Board of India
(“SEBI”)91
Facts
In this case The Reliance Industries Limited in connivance with other entities related/connected
to it took short positions in the Future and Options (“F&O”) Segment of the National Stock
Exchange of India Ltd. (“NSE”) in the scrip of RPL. SEBI had alleged that prior to RIL’s merger
with Reliance Petroleum Limited (“RPL”), RIL had short-sold its stake of approx.20 crore shares
91
Adjudicating Order No. EAD-3/AO/DRK/JP/573?117of 2014
91
in RPL to prevent a slump in stock in the F & O segment and thus, had contravened the
provisions of SEBI Act, 1992 (“Act”), the Securities Contracts Regulation Act, 1956 and the
SEBI (contravention of Fraudulent and Unfair Trade Practices Relating to Securities Market)
Regulations, 2003 (“FUTP Regulations”).
Judgement
The Securities and Exchange Board of India has imposed a fine of Rs 11 crore on Reliance
Industries (RIL) for non-disclosure of diluted earnings per share (DEPS) after the promoters
were issued warrants in 2007, the latest in a series of regulatory actions against India's largest
private sector company by revenues
“It may be concluded that by virtue of RPIL having control over IPCL, it was reasonably
expected to have access to unpublished price sensitive information of IPCL. RPIL being the
promoter having control over the company holding 46 per cent shares of IPCL is inherently
expected to have access to price sensitive information. The company being in such a position it is
unacceptable that it was not aware of such major/ important decisions of the company IPCL," the
Sebi order said.
The findings of the investigation led to the allegation that RPIL was in the possession of
unpublished price sensitive information while trading in the scrip of IPCL prior to
announcement of declaration of interim dividend and amalgamation of IPCL with Reliance
Industries which resulted in violation of regulation 3 of SEBI (Prohibition of Insider Trading)
Regulations, 1992.
CASE 7 CHANDRAKALA V. SEBI
Order: - SAT
Date Of Order: - January, 31st, 2012
Investigation Period: - June 8, 2007 to July 20, 2007
Facts:- The scrip of the company M/s. Rasi Electrodes Ltd. is listed on the Bombay Stock
Exchange Ltd. It was noted that certain promoter entities had traded in the scrip during the
92
investigation period. It was further noticed by the Board that the agenda for the board meeting to
be held on June 30, 2007 was discussed internally between Mr. B Popatlal Kothari, (“CMD”) &
Mr. G Mahavirchand Kochar (whole time director of the company). The agenda was finalized
between June 19 to 21, 2007. The rate of dividend was finalized in the meeting held on June 30,
2007.
UPSI period for financial result & Dividend:- June 19 to 30, 2007
BONUS ISSUE: - Agenda for the board meeting regarding bonus issue was to be held on July
25, 2007 & discussed internally during the period July 15 to 17, 2007 and the agenda papers
were circulated on July 17, 2007.
UPSI period for Bonus Issue: - July 15 to 17, 2007
Appellant is wife of Uttam Kumar Kothari who is the promoter of the company and is brother of
B Popatlal Kothari,CMD and Ranjit Kumar Kothari, director of the company.
Issues :- Whether the appellant is guilty of ‘insider trading’ or not ?
Decision:-
SEBI- appellant was held guilty of violating regulations 3(i) and 4 of the Securities and
Exchange Board of India (Prohibition of Insider Trading) Regulations, 1992 (the regulations)
and imposing a monetary penalty of ` 8 lakhs on her.
SAT :- It means that the trades executed should be motivated by the information in the
possession of the insider. A person who is in possession of unpublished price sensitive
information which, on becoming public is likely to cause a positive impact on the price of the
scrip, would only buy shares and would not sell the shares before the unpublished price sensitive
information becomes public and would immediately offload the shares post the information
becoming public. This is not so in the case under consideration. In this case declaration of
financial results, dividend and bonus were positive information but the appellant not only bought
but also sold the shares not only during the period when the price sensitive information was
unpublished but also prior to and after the information becoming public.
93
The trading pattern of the appellant does not lead to the conclusion that the appellant’s trades
were induced by the unpublished price sensitive information. So she was not held liable for
insider trading.
So, as a result, the appeal is allowed and impugned order was set aside with no order as to costs.
CASE 8 Mr. Abhijit Mahajan, Ex. Cmd of Gammon v. Infrastructure Projects Limited.
Order:- SEBI ( Rajeev Kumar Garwal-whole time member )
Date of Order: - March 23rd, 2015
Facts: - Mr. Abhijit Rajan (“notice”) was the CMD of GIPL (till September 20, 2013 but
continued to be on the board of GIPL.
TIMELINE
September 03, 2013, GIPL made a disclosure to the stock exchanges regarding termination of
Shareholders' Agreement(“SHA”) dated April 26, 2012 with Simplex Infrastructures Limited
("SIL") for purchasing 49% equity stake in "Maa Durga Expressways-` 940 crores") promoted
by SIL and selling 49% equity stake in " Vijayawada Road Project-` 1648 crores promoted by
GIPL.
On August 09, 2013, resolution for termination of agreement was passed in the board meeting of
GIPL and signed on August 30, 2013 by SIL and GIPL.
On August 22, 2013, Mr. Abhijit Rajan sold 1,43,81,246 shares held by him in GIPL on August
22, 2013 for an aggregate value of ₹10,27,40,534/.
GIPL vide emails dated June 21, 2014 and June 27, 2014 confirmed that the telephonic
discussions between the senior management of GIPL and SIL regarding termination of the
Shareholders' Agreement dated April 26, 2012 commenced in the second week of July 2013.
& finally the decision of termination of Shareholders' Agreement was taken by the board of
GIPL in the board meeting held on August 09, 2013.
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Points to be observed: - The 'unpublished price sensitive information' about the SHA dated
April 26, 2012 was in existence from the second week of July 2013 and it remained unpublished
till September 03, 2013. Thus, he engaged in insider trading which is prohibited under the SEBI
Act and the SEBI (Prohibition of Insider Trading) Regulations, 1992 ("PIT Regulations").
How he was connected: Mr. Abhijit Rajan was the CMD of GIPL till September 20, 2013 and
continues to be its director thereafter. Thus, by virtue of his position in the company, he was
connected to GIPL when he indulged in the impugned trading and he continues to be connected.
Apart from this, being CMD of GIPL and having attended and chaired the board meeting held on
August 09, 2013, he also had full access to the 'unpublished price sensitive information'. Thus,
he is squarely covered by the definition of the term ‘insider’.
ISSUE: - Whether termination of SHA dated April 26, 2012 was a price sensitive information or
not?
CONTENTION RAISED :- The sale transaction was not done with a view to gain any unfair
advantage/ to defraud the investors of GIPL .It was undertaken under compelling need for funds
arrangement to approved Corporate Debt Restructuring ("CDR") package with lenders to prevent
GIL from liquidation having debt of ₹14000 crore. For the same, the Noticee sold his personal
assets including shares in various companies such as GIPL. The proceeds of the sale transaction
(approximately ₹ 10 crore) were transferred to GIL in August, 2013. If the Noticee had not
infused the funds into GIL, it would have gone into bankruptcy which could have adversely
affected and prejudiced the interests.
DECISION:- ad interim ex-parte order dated July 17, 2014 (hereinafter referred to as "interim
order") SEBI restrained the Noticee from buying, selling or dealing in securities and accessing
the securities markets, either directly or indirectly, in any manner whatsoever . So, it can
reasonably be inferred that Mr. Abhijit Rajan was aware of the decision to terminate the
Shareholders' Agreement at all relevant times when the verbal discussions were held and emails
were exchanged with regard to the termination of Shareholders' Agreement.
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ORDER: - Therefore, the termination of SHA for the infrastructure projects, as big as in the
instant case (involment of 2600 crore) was a significant change in the plans or operations of
GIPL and this information had the likelihood of affecting the prices of securities of GIPL.
Therefore, such information, would fall within the purview of the definition of 'price sensitive
information' under regulation 2(ha) of the PIT Regulations. Thus, such a serious violation by a
person, who holds a significant position in listed companies and has a considerable stake in 9
listed companies, poses a threat to the integrity of the securities market and sends a wrong
signal to the investors in securities market.
Acc. to Judgement dated on March 21st 2016- hereby order to impound the alleged unlawful
gains of a sum of ` 1,44,37,670/- (alleged gain of`1,10,23,658/ - + interest of ` Rs.34,14,012/-
)from August 23, 2013 upto March 21, 2016),jointly and severally from the persons/entity liable.
CASE 9 IN THE MATTER OF HARISH K. VAID
Summary: - In the Instant case Harish vaid is a Company secretary and compliance officer of
Jai Prakash Associates ltd. It is alleged that appellant being an insider was in possession of UPSI
relating to financial results of the co. for the Quarter ending September 30, 2008.He bought 500
shares on October 15, and sold them on October 16, 2015 while in possession of UPSI.
Facts:-Harish K. Vaid is also Karta of Harish K. Vaid, HUF. The company received trial
balances for the quarter ending September 30, 2008 from its various units in the first week of
October 2008. Thereafter, the company made an announcement to the stock exchange on
October 11, 2008 that in the Board meeting scheduled to be held on October 21, 2008, issues
relating to the unaudited financial results for the quarter ending September 30, 2008,interim
dividend for the years 2008-09 and the rights issue will be considered.It is alleged that the
appellant, being an insider was in possession of the UPSI relating to financial results of the
company for the quarter ending September 30, 2008. He bought 500 shares of the company on
October 15, 2008 and sold 500 shares on October 16, 2008, while in possession of UPSI.
The trading window closed on - October 11, 2008 as required under the code of conduct.
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Period of investigation September 29, 2008 to October 27, 2008.
Contention raised :- On the basis of quantity of share sold & purchased , it is highly improbable
that the trading was done on the basis of UPSI.
Sebi view :- While quantity traded and the profit made are not substantial, the fact remains that it
was done when the appellants were in possession of UPSI. Mr. Harish K. Vaid, being the
Compliance Officer of the company was supposed to act carefully as he is fully aware of the
rules, his position in the company and the provisions of the code of conduct prescribed for the
employees. So, the Profits booked out of the alleged Trades even though are insignificantly small
amounting to ` 2,216/- only-the quantum of trading done & profits earned become immaterial.
Issue :-
1. The only issue to be decided is that whether appellant was in possession of UPSI and whether
Trading done is based on the UPSI possession.
2. On the basis of quantum of shares purchased, the penalty imposed by the Board is
excessive/not?
DECISION: - 1. Such information relating to trial balances, declaration of dividend etc. is price
sensitive information within the meaning of regulation 2(ha) of the Regulations. Harish K. Vaid
is the Karta of Harish K. Vaid, HUF and is responsible for all acts of the HUF. When trading is
done during the existence of UPSI, the presumption is that it is on the basis of UPSI.
2. The appellant is the Company Secretary and Compliance Officer of the company who was
involved in the finalization of quarterly financial results and was fully aware of the regulatory
framework and code of conduct of the company. Under such circumstances, when there is a total
prohibition on an insider to deal in the shares of the company while in possession of UPSI, the
quantity of shares traded by him becomes immaterial.
Section 15G of the Act prescribes the penalty of twenty-five crore rupees or three times the
amount of profit made out of the insider trading, whichever is higher. Section 15HB of the Act
prescribes a penalty which may extend to one crore rupees. However, the adjudicating officer has
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imposed a penalty of ` 10 lacs only on each of the violators. In the facts and circumstances of the
case, we are not inclined to interfere even with the quantum of penalty imposed.
Appeal (Appeal No. 63 of 2012, Date of decision: 03.10.2012) -The appeal filed against the
order dated January 5, 2012 is dismissed with no order as to costs
CASE 10 POLARIS SOFTWARE LAB LIMITED V. SEBI
Order: - SEBI- (PRASHANT SARAN, WHOLE TIME MEMBER)
Date: - NOVEMBER 24th, 2014
Facts: - Polaris Software Lab Limited was incorporated under the Companies Act, 1956 on
January 05, 1993. Mr. Arun Jain, CMD of Polaris and Mr. R. Srikanth, ex- Chief Financial
Officer (CFO) of Polaris had traded in the shares of the Company during the investigation
period, while in possession of ‘price sensitive information’ (‘PSI’).
Investigation Period :- For the period of April 21, 2008 to July 31, 2008
A.Declaration of quarterly results of company.:- July 17, 2008
The financial results of the Company were discussed in the Board Meeting and the Audit
Committee meeting held on July 17, 2008.
Date & Time Event
On 17-July-08 1. Consolidated Results for the quarter ended June 30, 2008
Time - 14:51 hrs 2. Approval of commencement of the Real Estate business activity
Date Event
June 26, 2008 Polaris informed NSE that its Board shall meet on July 17, 2008 to
discuss & approve the quarterly financial results of the Company for the
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quarter ended June 30, 2008.
July 01, 2008 Polaris initiated preparation of quarterly financials result.
July 07, 2008 The draft quarterly results of Polaris for the quarter ended June 30, 2008
was submitted to the auditors for their review and report.
(Mr. Arun Jain on or before July 07, 2008 - he was in possession of the
financial numbers of Polaris at least few days before July 07, 2008.)
July 17, 2008 a. The Board Meeting was held and the quarterly financial results of
Polaris were discussed and approved.
c. The Company declared the quarterly financial results.
 remained unpublished till July 17, 2008
B. Commencement of Real Estate business activity
The Board of Polaris in its meeting dated July 17, 2008, had also discussed and approved the
entry of Polaris into the real estate business activity subject to the regulatory proceedings.
The chronology of the details regarding the ‘real estate business’ of Polaris are as follows:
Date Event
April  Spark Capital Advisors, the Merchant Banker, recommended the demerger of
21, Polaris, more particularly the land bank, in order to maximise the Company
2008 shareholders’ value by creation of two separate listed entities.
 An e-mail was sent by Mr. R. Srikanth, CFO to Mar. Arun Jain, CMD
discussing the demerger process mentioning that ‘it is completely right.
April  Meeting of Board of Directors of Polaris was held. The Board of Polaris
23, discussed and decided to explore the best options to maximise the shareholder
2008 value from the real estate investments made by the Company. For the same,
the Board had constituted a Committee comprising of various directors of
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Polaris including Mr. R. Srikanth, CFO, as a core member to make a study on
the real estate investments made by the Company so as to maximize
shareholders returns.
June An e-mail was sent by Mr. R. Srikanth to Merchant banker, on the demerger process
09, (a copy of the same was also marked to Mr. Arun Jain), wherein it was mentioned
2008 that Polaris has to act fast on the demerger decision.
June An e-mail was sent by Mr. R. Srikanth to the Board of Directors of Polaris
30, communicating the dates of the next Board and Audit Committee meetings.
2008
July 10, An e-mail was sent by Mr. R. Srikanth to Mr. Arun Jain mentioning about the
2008 committee meeting held in Delhi on monetisation of real estate business.
July 17, Board Meeting of Polaris, where it was decided to foray into the Real Estate business
2008 activity, subject to amendment of object clauses of the Memorandum of Association
to enable real estate business as an independent activity within Polaris and other
regulatory aspects/process
Prima facie it appears that the UPSI regarding the decision of Polaris to foray into ‘real estate
business’ came into existence on June 09, 2008.
Trading window closure period: Polaris had mentioned that for the purposes of the Board
Meeting held on July 17, 2008, the Company had closed the trading window from July 11, 2008
to July 18, 2008.
During the period (i.e. from June 09, 2008 to July 17, 2008) when the PSI remained unpublished:
- Mr. Arun Jain bought 7,74948 shares,
- Mr. R. Srikanth bought 1,35,000 shares.
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Issue – 1. Whether trading in shares was done during the possession of UPSI ?
2. Whether the concerned person are insider & are they held liable for Insider Trading?
Decision:- Mr. Arun Jain and Mr. R. Srikanth had traded in the shares of Polaris during the UPSI
period (i.e. pertaining to the declaration of quarterly financial results and commencement of real
estate activities) .
Mr Arun Jain & Mr. R. Srikanth - by virtue of their position in Polaris, they were in the
possession of the UPSI at the time they made the purchases in the scrip of Polaris .Being the
CMD & CFO of the Company during the relevant period they are said to be ‘connected person’
within the meaning of Regulation 2(c) (ii) of the PIT Regulations and by virtue of him being a
‘connected person’ he is also an ‘insider’ within the meaning of Regulation 2(e) of the PIT
Regulations.
In the investigation it has been found that Mr. R. Srikanth did not have the requisite finances
capital to procure such quantities of shares of Polaris. For the same, he obtained funding from
Kotak Mahindra Investments Limited, by which he funded his purchase of 1,35,000 shares of
Polaris on July 07, 2008 and July 08, 2008. Further, the investigations have also revealed that
Mr. R. Srikanth had not made the required disclosures of the discussed purchases to the
Company as required under the Regulation 13(4) and 13(5) of the PIT Regulations
Penalty Imposed - Mr. Arun & Srikanth had not sold the shares purchased by them i.e. before
the PSI became public. The UPSI was made public at 14:51 hrs on July 17, 2008. Hence, the
closing price of July 18, 2008, has been reckoned as the reference price for calculating the value
of sale. Hence the scrip of Polaris had closed at ₹81.75 on July 18, 2008,-
- Mr. Arun Jain: ₹6,33,51,999 (7,74,948 shares purchased X ₹81.75) – ₹5,35,40,310 (cost of
purchases)= ₹98,11,689/-. + 12 % = 1,84,68,558
- Mr. R. Srikanth: ₹1,10,36,250 (1,35,000 shares purchased X ₹81.75) – ₹99,89,938 (cost of

purchases)= ₹10,46,312/-. + 12% = 19,69,47
CASE 11 : IN THE MATTER OF KLG CAPITAL SERVICES LIMITED
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Order:- SEBI- (PRASHANT SARAN, WHOLE TIME MEMBER)
Date: - JULY 24th, 2014
Facts:- In March 2008, Awaita Properties Private Limited (‘Awaita’) announced an open offer
for acquiring 20% stake in KLG Capital Services Ltd (prior to this they already acquired 60%
share in acquiring co.-‘KLG Capital’) and in Feb. 2008 (just before, making the open offer), 3
entities traded in shares of KLG Capital. These 3 entities were connected to SKIL - a group
company of Awaita (‘Group Company’) . Therefore, shares of KLG Capital were traded by
persons connected to the Group Company. It is deemed that they are ‘connected persons’ to the
KLG - Target Company, in which the trading had taken place & they had access to Unpublished
Price Sensitive Information (UPSI), it means that were aware of proposed acquisition.
Following persons traded in shares of Target company:-
(i) President of SKIL, which was Group Company of acquirer, i.e. Awaita; Hemant R.Patel
(ii) President of SKIL, communicated such UPSI to Executive Director (‘ED’) of SKIL; Praveen
Mohnot
(iii) ED of SKIL passed UPSI to his daughter who traded in KLG’s shares:-Priyanka singhvi
(iv) Deputy Chairman (Director- N.ravichandran) of SKIL communicated UPSI to his wife (
Anita Ravichandran ), who then traded in KLG’s shares;
Contenion Raised:- The President, ED and Deputy Chairman claimed that they are not
connected to KLG Capital (target company), company in which insider trading took place. Also,
they claimed that they did not occupy any position/had business relationship with KLG Capital,
therefore could not be reasonably expected to have access to UPSI.
Issue:- Whether the noticees fall within the ambit of 'insiders' & dealt in the shares of KLG,
while in possession of UPSI?
ORDER – SEPT 22, 2009 :- President & Director shall not hold any position of Director of
board of Directors of any listed co. for a period of 5 years. & for others including Daughter wife
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& Director for period of 2 years & buy, sell or deal in the securities market for a period of 5
years. In addition to the above, the noticees namely Mr. Hemant R. Patel, Ms. Priyanka Singhvi
and Ms. Anita Ravichandran were also directed to disgorge the unjust enrichment of ₹47,69,131,
₹4,36,79,348 and ₹61,16,320 respectively including interest at the rate of 12% within 45 days
from the date of the order.
SECURITIES APPELLATE TRIBUNAL (hereinafter referred to as 'SAT'). The appeals were

disposed off vide a common order dated October 21, 2010, wherein, the Hon'ble SAT remanded
the matter back to SEBI, whole time member for issuing a fresh show cause notice to the
appellants laying therein a specific charge that they being connected/ deemed to be connected
persons were "insiders" within the meaning of the Regulations in addition to the allegations.
FRESH SEBI ORDER DATED 24 JULY 2014 –
Hemant R.Patel –
1. He had continuous conversation through Merchant Banker of Awaita (NSBL) about share
acquisition and with the promoter of KLG co.
2. Also, Mr. Hemant R. Patel has been appointed as director in the Board of KLG from
June 20, 2008 i.e. post the acquisition of KLG by APPL reinforces the inference that he
was the key figure in the acquisition process of KLG by APPL.
3. Mr. Hemant R. Patel had dealt in the shares of KLG on behalf of Hemant Patel (HUF)
had placed two orders for the purchase of 80,000 shares of KLG on February 22, 2008,
(amounting to ₹26.16 lakh.)
SEBI rejecting the contentions raised and concluded that SKIL’s President was ‘connected
person’ to KLG Capital. SEBI termed this as temporary professional or business relationship
with KLG Capital and that President had UPSI of impending open offer, SEBI termed him as an
‘insider’. On the same lines, SEBI found ED, ED’s relative, Deputy Chairman and Deputy
Chairman’s wife as ‘insiders’ in accordance with PIT Regulations.
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Mr. Hemant R. Patel, Mr. N. Ravichandran, Priyanka Singhvi and Ms. Anita Ravichandran shall
not: buy, sell or deal in the securities market / hold position of Director in the Board of Directors
for a period of ten (10) years from the date of this order.
Conclusively, Mr. Hemant R. Patel and Hemant Patel (HUF) - were liable to pay a total amount
of ₹ 73, 87,999 (Rupees Seventy Three Lakh Eighty Seven Thousand Nine Hundred Ninety Nine
only);
Praveen mahnot :- Mr. Praveen Mohnot has also been appointed as director in the Board of KLG
from June 20, 2008, i.e. post the acquisition of KLG by APPL reinforces the inference that he
was the key figure in the acquisition process.
Ms. Priyanka Singhvi was liable to pay total amount of ₹1,21,70,732 (Rupees One Crore Twenty
One Lakh Seventy Thousand Seven Hundred Thirty Two only); &
Ms. Anita Ravichandran- total amount of ₹94,83,982 (Rupees Ninety Four Lakh Eighty Three
Thousand Nine Hundred Eighty Two only).
CASE 12 : PALRED TECHNOLOGIES LIMITED V. SEBI
Order:- SEBI ( Prashant Saran - whole time member )
Date Of Order:- Feb 04th ,2016
Period Of Investigation :- September 18, 2012 to November 30, 2013
Facts:- Company Palred Technologies Limited was incorporated in the year 1999. The scrip of
“PTL” is listed on National Stock Exchange Limited (hereinafter referred to as ‘NSE’) and
Bombay Stock Exchange (hereinafter referred to as ‘BSE’).SEBI conducted an investigation into
the scrip “PTL” co. for the period of September 18, 2012 to November 30, 2013 referred to as
‘the investigation period’) to ascertain the possible violation of the provisions.
TIMELINE
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12-Aug-2013 -Board of Directors of “PTL” in the meeting held on August 10, 2013 had
approved the slump sale of software solutions business to Kewill group. On this day only,
“PTL”also considered distribution of one-time special dividend post closure of the sale
transaction.
07-Oct-2013 -“PTL” on October 04, 2013 had informed NSE about the completion of the deal
(relating to slump sale of its software solutions business) on October 04, 2013.
15-Oct-2013 Board of Directors of “PTL” in the meeting held on October 13, 2013 considered
and approved interim dividend at ₹29 per share payable on or after October 22, 2013 to the
shareholders holding shares as on record date i.e. October 18, 2013.
Slump sale of software solution business to Kewill Group “KG” (KEY POINTS TO
NOTICE)
The Company had undergone financial crises from which it recovered. Subsequently, the
Company decided to sell its business on a slump sale basis to another entity. It is pertinent to
note that the price of the scrip was extremely low (`16.80) following the period of recovery.
Further, the Company decided to declare special dividend and also carry out a buyback of shares
post the aforementioned transaction which lead to the shareholders receiving an amount much
higher than the then ruling market price of the equity shares of the Company. Subsequently, the
share price of the Company rose substantially i.e. `16.80 To `42.15 registering thereby an
increase of 135% in forty four (44) trading days on NSE.
Date Event
September 05, Initiation of discussion had started between Kewill Group and “ptl” for slump
2012 sale of its software business.
September 18, The non-disclosure agreement was executed between “KG” and “PTL” in
2012 the presence of the representatives of PTL (namely Mr. Palem S. Reddy, Mr.
Biju Nair, Mr. K.V. Ramakrishna) and BMR Advisors.
August 10, “PTL” informed the Exchanges about the slump sale.
2013
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August 10, Announcement on BSE that the Board of Directors had approved the
2013 proposal for slump sale and signing of the ‘acquisition agreement’.
August 12, Corporate announcement on NSE that the Board of Directors had approved
2013 slump sale& consider one-time special dividend for shareholders.
August 10, 2013 after the announcement of ‘slump sale of software solutions business to Kewill
group’,
August 08, 2013 The scrip price of “PTL” - 17.95 ,
(October 15, 2013 ) 42.15 -An increase of 135% in 44 trading days on NSE & BSE
The period of such UPSI - from September 18, 2012 to August 10, 2013.
Trading window closure period: PTL had informed that the Company had closed the trading
window from August 08, 2013 to August 13, 2103.
Date Event
September 12, 2013 Initiation of working on the quantum of dividend and capital
reduction by BMR Advisors (investment advisor).
October 13, 2013 (Sunday) The board of PTL discussed and approved the declaration of
dividend of ₹29 per share. Record date for payment of
dividend was fixed as October 18, 2013.
October 14, 2013 Corporate announcement on BSE that the board of PTL had
discussed and approved dividend of ₹29 per share and fixed
the record date for payment of dividend as October 18, 2013.
After the announcement of ‘declaration of dividend’ on October 14, 2013, the price of the scrip
had moved from a close of ₹38.25 on October 11, 2013 to a close of ₹42.15 on October 15, 2013
(i.e. a rise of about 10.20% in 2 trading days). A probe conducted by Sebi in the share price of
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Palred Technologies between September 2012 to November 2013 revealed that the entities had
traded in the shares of the company on the basis of unpublished price-sensitive information
(UPSI) pertaining to slump sale of its software solutions business and declaration of interim
dividend and made profits .
The investigations have revealed that CMD had communicated/ counselled, directly or
indirectly the UPSI to one Mr. Aman, his relative and others . The CMD being the connected
person within the meaning of Regulation 2(c)(i) of the SEBI (PIT) . Regulations and having
access to the Unpublished Price Sensitive Information ("UPSI"), was alleged to be an 'insider' in
terms of the Regulation 2(e) read with Regulation 2(c) of the SEBI (PIT) Regulations.
WHO ARE CONNECTED PERSONS IN THE PRESENT CASE ?
1. Mr. PALEM SRIKANTH REDDY (CMD) of the Company along with two (2) other
representatives ( MOHAN KRISHAN REDDY & P.SOUJANYA REDDY) are persons
were privy to the UPSI in relation to the slump sale and special dividend;
2. Mr. Ameen Khwaja & Mr.Palem Reddy were the common directors of Pal Premium
Online Media ltd( “PAL”) (which was to be merged with the Company) which
incidentally had also provided services to the Company;
3. Mr. Ameen Khwaja not traded in the scrip of PTL during the period of investigation.
However, his immediate 5 family members namely PQR Group were found to be trading
in the scrip of XYZ during the UPSI period.
4. Mr. Pirani Amyn & Abdul Aziz was employed with a group company of which had
conducted the due diligence of the Company during its slump sale transaction.
5. Mr. Mohan Krishna Reddy Aryabumi was the non-executive and Independent Director of
PTL from June 19, 2009 till August 14, 2015 and had traded in the scrip of PTL during
the UPSI. He contended that he was having professional relationship with Mr. Palem
Srikanth Reddy as a director in “PTL” and had purchased the shares for investment.
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6. Ms. P. Soujanya Reddy :- is the promoter of PTL and mother-in-law of Mr. Palem
Srikanth Reddy. She is alleged to be an insider .
7. Ms. Kukati Parvathi is the aunt of Mr. Palem Srikanth Reddy. Mr. Palem Srikanth . She
also traded in shares.
8. Mr. Karna Ramanjula Reddy was an employee of PTL and he worked in the Finance
Department of the Company as an Assistant Manager during the period of UPSI.
9. Mr. Prakash Lohia, Mr. Umashankar S. and Ms. Raja Lakshmi Srivaiguntam: were the
former employees of PTL.
ISSUES FOR CONSIDERATION
After perusal of the factual situation available, I have the following issues for consideration:-
1. Whether the “person mentioned are deemed to be a connected person or not?”
2. On whom does the balance of convenience lies?
3. Whether the connected person involved are ‘insider’ and had access to UPSI?
4. If the answer to the aforesaid question is in affirmative, whether the CMD and other
person have violated provisions of Regulation 3 of PIT Regulations?
5. What quantum of monetary penalty should be imposed on the insiders, if liable for
monetary penalty under Section 15G of the SEBI Act?
1. Persons are “CONNECTED” person because:-
Mr. Ameen Khwaja- He is also liable for the same along with his family members and groups
because it can be easily deduced that as per his guidance, his family member did trading in the
scrip of PTL during the UPSI period.
The trading pattern of Aman Family Member was found to be in clear deviation from their
established trading pattern. It has also been revealed that the trading accounts of four members of
group were opened only on June 26, 2013, June 27, 2013, July 10, 2013 and July 12, 2013 i.e.
during the UPSI period.”KHWAJA GROUP” entities had purchased substantial quantity of
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shares of ‘PTL’ during the UPSI of ‘slump sale’. An analysis of the bank statement revealed that
the amount invested by these entities for the purchase of ‘PTL’ shares is considerably higher
than their annual income.
Mr. Pirani Amyn Abdul Aziz: - It is noted that Mr. Aziz is found to be connected to Mr. Ameen
Khwaja through mutual friends on Facebook.
FACEBOOK – CONNECTING PEOPLE..!!!
This is for the first time that SEBI has treated Facebook as a relevant factor to establish
connection between persons. In this present case, SEBI has dealt and concluded that having
"mutual friends" on Facebook will form the basis of determination of connection. Facebook is an
open social media networking website connecting people where friends are made/ deleted even
at times without knowing detailed background of the parties. In fact, there are times where
people on Facebook may not be connected in any manner to the person concerned or may not be
even offline contact with such person. However, it is pertinent to note that pursuant to the
aforementioned order, SEBI has made it quite evident that it may resort to and go to any extent
to protect the interest of investors even if that takes in intruding into a "so called" private space
of individuals viz. the social media platforms (Facebook, twitter, LinkedIn, etc.) to establish
'connection' for investigation purposes of insider trading violations.
Mr. MOHAN REDDY:- He being the member of the Board of ‘PTL’, during the relevant
period can be said to be in possession of UPSI and had traded in the scrip of ‘PTL’ based on the
same & therefore his contention that he purchased the shares for investment cannot be upheld.
Ms. P. Soujanya Reddy Being on the board of ‘PTL’ and also mother-in-law of Mr. Palem
Srikanth Reddy, she is alleged to be an insider in terms of Regulation 2(c) and 2(e) of the PIT
Regulations.
Ms. Kukati Parvathi- The investment by aunt of Mr. Palem were not found commensurate with
her income. The same suggest trading by her on PSI.
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Mr. Karna Reddy was an employee of ‘PTL’ was investing a relatively large portion of his
salary and also arranging other cash funds for investing in the scrip of PTL, during the UPSI
period suggests that he was trading in the scrip based on PSI and can be considered as an
‘insider’ in terms of the Regulation 2(e) of the PIT Regulation.
2. Considering the facts and circumstances of the case, the balance of convenience lies in
favour of SEBI.
3. The ‘slump sale of software solutions business to ‘KG Group’’ came into existence on
September 18, 2012, i.e. when the non-disclosure agreement was executed. Disclosure of
the agreement would certainly have an impact on the deal. Therefore, the same can be
considered to be an ‘unpublished price sensitive information’ (hereinafter referred to as
‘UPSI’) which had definitely originated on September 18, 2012 and the same had
remained unpublished till August 10, 2013 at 13:01 hrs.
These individuals were allegedly 'connected entities' and had traded in the shares of “PTL” Co.’
while possessing price-sensitive information and allegedly made unlawful gains in the process,
Sebi found. So, they can be said to be insider and had access to UPSI.
4. (Regulation 3 :- Prohibition on dealing, communicating or counselling on matters relating

to insider trading - No insider shall— (i) either on his own behalf or on behalf of any
other person, deal in securities of a company & (ii) communicate/counsel/procure
directly or indirectly any unpublished price sensitive information to any person who
while in possession of such UPSI shall not deal in securities )
The probe conducted by Sebi in the share price of Palred Technologies between September 2012
to November 2013 revealed that the entities had traded in the shares of the company on the basis
of unpublished price-sensitive information (UPSI) pertaining to slump sale of its software
solutions business and declaration of interim dividend and made profits .
The investigations have revealed that CMD had communicated/ counselled, directly or
indirectly the UPSI to one Mr. Aman, his relative and others. The CMD being the connected
person within the meaning of Regulation 2(c) (i) of the SEBI (PIT). Regulations and having
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access to the Unpublished Price Sensitive Information ("UPSI"), was alleged to be an 'insider' in
terms of the Regulation 2(e) read with Regulation 2(c) of the SEBI (PIT) Regulations.
5. As the alleged gains were made during the year 2011, it becomes reasonable and
necessary to levy an interest at the rate of 12% simple interest per annum.
Order to impound the alleged unlawful gains of Rs. 2,22,14,383 ( i.e. alleged gain
[1,65,59,129] + interest [56,55,254]) from the date of buy transactions to January 31, 2016),
jointly and severally from the persons involved in Insider Trading. If the funds are found to be
insufficient to meet the figure of unlawful gains, as directed above, then the securities lying in the
demat account of these persons shall be frozen to the extent of the remaining value. The persons/
entities involved above are directed not to dispose off or alienate any of their
assets/properties/securities, till such time the amounts mentioned are credited to an escrow
account.
INTERNATIONAL CASE 13
SEC vs. RAJAT K. GUPTA and RAJRAJARATNAM,
Order:- Sec ( United States district court southern district of new york )
Date Of Order:- OCTOBER 26th ,2011
Summary :- This matter concerns an extensive insider trading scheme conducted by Gupta and
Rajaratnam. On multiple occasions, Gupta disclosed material non public information that he
obtained in the course of his duties as a member of the Boards of Directors of The Goldman
Sachs Group, ("Goldman Sachs") and The Procter & Gamble Company ("Procter & Gamble") to
Rajaratnam, the founder and Managing General Partner of the hedge fund investment manager
named Galleon Management, LP ("Galleon"). Rajaratnam, in tum, either caused the Galleon
hedge funds that he managed to trade on the basis of material non-public information, or passed
the information on to others at Galleon who caused other Galleon hedge funds to trade on the
basis of the material non public information.'
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During the relevant period, Gupta had a variety of business dealings with Rajaratnam and stood
to benefit from his relationship with Rajaratnam.
DEFENDANTS
Rajat K.Gupta was a member of Goldman Sachs's Board of Directors . During his tenure on
Goldman Sachs's Board, Gupta served as a member of the Board's Audit Committee, Corporate
Governance and Nominating Committee, and Compensation Committee. During the relevant
time period, Gupta was a member of Procter & Gamble's Board of Directors, and served on the
Board's Audit Committee and its Innovation and Technology Committee. Gupta is a Founding
Partner and former Chairman of New Silk Route Partners ("New Silk Route"), an investment
firm that was originally called Taj Capital Partners and was founded by Gupta, Rajaratnam, and
others in 2006.
Rajaratnam founder and Managing General Partner of Galleon. During the period relevant to the
allegations in this Complaint, Rajaratnam either served as Portfolio Manager of the Galleon
hedge funds. Prior to founding Galleon, Rajaratnam worked at Needham & Co., a registered
broker-dealer, for 11 years.
Relevant Individuals and Entities
 Berkshire is a Delaware corporation headquartered in Omaha

 Galleon, a Delaware limited partnership, was a hedge fund investment adviser based in
New York. As of March 2009, Galleon had over $2.6 billion under management. In the
wake of the October 16, 2009 arrest of Rajaratnam on charges of insider trading, Galleon
began to liquidate itself and the hedge funds it advised.
 Goldman Sachs is a Delaware corporation headquartered in New York.
 Procter & Gamble is an Ohio corporation headquartered in Cincinnati, Ohio.
Facts: - Trading in Advance of Berkshire's $5 Billion Investment in Goldman Sachs
In September 2008, Gupta disclosed to Rajaratnam material non-public information he learned as

a member of the Goldman Sachs Board of Directors concerning Berkshire's $5 billion investment
in Goldman Sachs, which was publicly announced on September 23, 2008.
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September 15, 2008 -after the bankruptcy filing of Lehman Brothers Holdings Inc. ("Lehman")
September 21, 2008 - Goldman Sachs executives continued to explore various strategic
alternatives the weekend after the Lehman bankruptcy. The Goldman Sachs Board convened a
Special Meeting on Sunday, September 21, 2008. During that meeting, which Gupta attended via
teleconference, the Board approved Goldman Sachs becoming a Bank Holding Company.
September 22 – After gupta’s phone conversation Galleon hedge funds he managed to purchase
over 100,000 Goldman Sachs shares.
September 23, Rajaratnam placed a call to Gupta. Less than a minute after the call began,
Rajaratnam caused the Galleon hedge funds to purchase an additional 50,000 Goldman Sachs
shares.
September 23, during which the Board considered and approved a $5 billion preferred stock
investment by Berkshire in Goldman Sachs and a public equity offering. Just minutes before the
close of the markets, Rajaratnam caused certain Galleon hedge funds to purchase more than
217,200, Goldman Sachs shares (Rajaratnam had actually attempted to purchase far more around
350,000).
Goldman Sachs's stock price, which had closed at $125.05 per share on September 23, opened at
$128.44 per share the following day and rose to a closing price that dayof$133.00 per share, a
gain of 6.36% from the prior day's closing price.
On September 24, Rajaratnam liquidated the Goldman Sachs's shares on the afternoon of
September 23, generating profits of over $800,000.
Trading in Advance of Goldman Sachs's Fourth Quarter of 2008 Financial Results
Gupta also disclosed material non public information about Goldman Sachs's financial results for
the fourth quarter of 2008 to Rajaratnam, who caused certain Galleon funds he managed to trade
on the basis of the information. Goldman Sachs announced negative results for the fourth quarter
of2008 on December 16, 2008, reporting a $2.1 billion loss, the first quarterly loss that Goldman
had sustained as a publicly-traded company.
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Blankfein began to appreciate very early in the fourth quarter of2008 that results were going to
be poor. The following morning, just as the financial markets opened at 9:30 a.m., Rajaratnam
As a result of Rajratnam’s trades on the basis of the material non-public information that gupta
provided, Galleon hedge funds avoided losses of more than $ 3.6 million: caused certain Galleon
hedge to sell their holdings of Goldman Sachs stock. The funds finished selling off their holdings
-which consisted of 150,000 shares -that same day at prices ranging from $97.74 to $102.17 per
share.
Trading in advance of Goldman Sachs’s for the Second Quarter of 2008
Financial Results
The total illicit profits made by the Galleon hedge funds by virtue of their trading on the basis of
Gupta's material non-public information concerning Goldman Sachs’s second quarter of 2008
results were nearly $185 million.
Trading in Advance of Procter & Gamble's Second Quarter 2008 Financial Results
Gupta disclosed that the company expected organic sales, or sales related to pre-existing rather
than newly acquired business segments, to grow 2-5% in the fiscal year. This compared
negatively to the 4-6% growth the company had previously publicly predicted & information that
Gupta provided to Rajaratnam, the Galleon funds generated illicit profits of over $570,000.
Decision: - On the basis of the following information concerning (i) Berkshire's September 2008
investment in Goldman Sachs; (ii) Goldman Sachs's mid-fourth quarter financial condition, (iii)
Goldman Sachs's financial results for the second quarter of2008, and (iv) Procter-& Gamble's
January 30, 2009, earnings release.
Violation:-
CLAIM I - Violations of Section lO(b) of the Exchange Act and Rule lOb-5 There under
(Against Both Defendants
CLAIM II-Violations of Section 17(a) of the Securities Act (Against Both Defendants)
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RAJRATNAM: - November, 8th 2011 – civil penalty of $92.8 million & criminal penalty of $
63.8 million i.e. a total of $ 156.6 million. And he was held liable for 14 Counts charged (5
counts for conspiracy + 9 counts for security fraud.)
December 27, 2012- Final judgement on Rajratnam was announced - $ 1,299,120.
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CHAPTER - 6
6. CONCLUSION AND SUGGESTION
6.1 CONCLUSION
The Indian capital market regulator, SEBI, has been attempting to crack down on insider trading
for a while, but it has hardly met with any major success so far. The lack of stringent
punishments for economic offences in India or the absence of adequate powers to combat these
crimes has helped people accused of insider trading to either walk scot-free or get away by
paying a small fine.
Thus, the problems in establishing charges of insider trading are largely related to the
unavailability of sufficient proof to establish mental intent and whether or not access to
unpublished price sensitive material was possible in the facts and circumstances of a particular
case. On an analysis of the regulatory mechanism in India, the only conclusion that can be
reached is that the laws prevalent in India are ill-equipped to combat insider trading and are not
conducive to the needs of a rapidly changing economy and corporate structure.
Though SEBI has taken a good step by introducing the new insider trading Regulations, i.e.
SEBI (Prohibition of Insider Trading Regulations) 2015, with a view to do away with the lacunae
and inadequacies of the 1992 Regulations, SEBI has revamped the entire framework governing
insider trading in India. With the introduction of the Regulations, the scope of who an ‘insider’
or a ‘connected person’, will stand significantly widened
Applicability of the Regulations shall extend to UPSI in relation to a company as well as

securities listed or proposed to be listed on a stock exchange. For the purpose of legitimate
business transactions, access to UPSI, for instance of due – diligence, with appropriate
safeguards has been explicitly provided for which shall avert the risk of any regulatory scrutiny
in relation to such transactions.
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It is of merit to consider that certain changes proposed by the N.K.Sodhi Committee, such as
introduction of definition of a ‘company’; inclusion of public servants or persons occupying
statutory positions within the definition of ‘connected persons and certain valid defences have
not been incorporated in the Regulations. A unique feature of the Regulations i.e. legislative
notes interspersed within provisions will be an effective tool for interpretation of these
Regulations going forward.
The Regulations shall come into force on the 120th day of their notification i.e. May 15, 2015.
Therefore, all companies as well as the promoters, employees, directors and external agencies in
a contractual or fiduciary relationship with such companies and officers will be required to
ensure due compliance with the Regulations within the stipulated time period. SEBI has
overhauled the entire framework for regulation of insider trading, which is seen to be a deep
rooted problem in India, with a view to ensure a level-playing field in the securities market and
to safeguard the interest of the investors. This move by SEBI will provide a much-needed filiip
to Indian capital market and facilitate further economic buoyancy.
6.2 SUGGESTION
The above study have found that the act of insider trading is not good for the society as a whole,
though SEBI has taken up many measures to prohibit insider trading but the time requires some
more stricter laws to stop insider trading. So the study recommends the following suggestions:
1. Proactive Stock Exchanges
The stock exchanges should take up at least a substantial burden of filing action against persons
violating the regulations. Since the Rules and regulations of the stock exchanges are considered
‘enactment’, and court judgments have found exchange regulations to have the force of law –
they could easily enforce the requirements of the listing terms or the rules and regulations by
seeking civil action in courts against persons or companies who violate such regulations. The
exchanges should also better coordinate monitoring and surveillance of listed companies to track
unusual activity in the stock of a company across markets for traces of insider dealings or
manipulation.
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2. Tippee liability
The regulations prohibit persons from tipping people about inside information by insiders i.e. the
tipper. However, there seems to be no liability for a person who improperly receives a tip i.e. a
tippee from trading. There is a vague prohibition against ‘procurement’ of information.
However, it does not clearly prohibit a tippee from trading.
3. Establishment of a Quasi-Judicial Body
A Quasi-Judicial body should be established for deciding the Insider trading cases, as now it is
becoming difficult for SEBI to do Penalise the offenders of insider trading as a result of which
many escapes the penalty. A separate quasi-judicial body will focus only on the cases dealing
with insider trading by which the conviction rate will increase and the cases of insider trading
will slow down.
4. More Stringent Code of Conduct For Prevention of Insider Trading
Creating robust internal control systems and self-regulation are the two primary and predominant
mechanisms to control insider trading within an organisation. Although India has been debating
over the establishment of SEBI-registered Self-Regulatory Organisations (SROs) for market
intermediaries for a long time, and despite the SEBI having promulgated the SEBI (Self
Regulatory Organisations) Regulations, 2004 (the “SRO Regulations”) for the recognition and
constitution of SROs, this concept continues to remain theoretical.
Solid framework of regulatory measures may enable in strict vigilance against insider trading in
India. A strong regulatory framework backed up with good internal governance code within the
organizations will enable business entities to reduce the instances of insider trading.
5. SEBI Should Play a More Vigilant Role
Insider trading is considered to be a serious economic offence. Despite regulations, several

countries have found it difficult to frame insiders because of the nature of the offence.
Identifying the insider and then proving the charge is an onerous task due to the heavy burden of
proof involved in each case. Although SEBI has implemented laws on insider trading yet the
number of offenders actually brought to book is dismal. In fact, many a time SEBI has been
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unable to detect instances of insider trading. SEBI Regulations do stipulate safeguards like initial
and continual disclosures by insiders to companies, code of conduct to be followed by listed
companies etc. but there is room for improvement. It is important to remember that capital
markets are a source of large pool of funds for all kinds of investors. Hence, it becomes
important to maintain its integrity and efficiency.
Nobody is more equal than the others and, therefore, trading by ‘insiders’ to the detriment of
‘outsiders’ should be strictly dealt with. SEBI should play a proactive and vigilant role. It should
introduce greater transparencies, keep a check on sudden abnormal trends in the market, provide
adequate safeguards like prohibit trading by insiders prior to corporate announcements viz.
mergers, takeovers, monitor the trading patterns and undertake swift investigations in case of a
spurt of buying or selling activity in the market, take stringent action against the guilty to act as
deterrence for others. At the same time, it is the prerogative of companies to strictly adhere to the
code of conduct prescribed by SEBI, and ensure good corporate governance in order to protect
the overall interest of investors against unfair and inequitable practices of insider trading.92
a) PREVENTION OF INSIDER TRADING AND CORPORATE GOOD GOVERNANCE
One Prof. Sandeep Parekh in his working paper on Prevention of Insider Trading and Corporate
Good Governance submitted in January 2003 has made certain good suggestions under the sub-
heading
“Prophylactics and corporate good governance” (The extract from the report is given below)
The 2002 amendments to the Regulations provide extensive suggestions and also extensive
regulations couched in the language of corporate good governance. Most of the good governance
provisions are provided for as mandatory provisions. Briefly, the good governance regulations
provide for:
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Unveiling Insider Trading available at
http://psalegal.com/upload/publication/assocFile/CAPITALMARKETBULLETIN-ISSUEIII_1288783630.pdf
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a) Officer, director and substantial shareholder to disclose their holding on certain events or at
certain intervals.
b) Appointment of a compliance officer.
c) Setting forth policies and procedure to restrict the possibility of abuse of insider trading.
d) Monitoring and pre-clearance of trades by the designated persons.
e) Restrict trading by such insiders within a certain period of time i.e. before corporate
announcements, buybacks etc. are made.
f) The company has to convey all the significant insider activity and corporate disclosure in a
uniform publicly accessible means to the public and to the stock Exchange.
g) Chinese walls within a firm to prevent one part of the firm which deals in sensitive
information from going to other parts of the firm which have an inherent conflict of interest with
such other parts.
h) Minimum holding period of securities by insiders.
I) No selective disclosure to analysts. Wide dissemination of information.
Sarbanes-Oxley Act
The US legislature, witness to an unending line of scandals, recently passed amendments to the
securities/disclosure laws of the country–in effect codifying into law several corporate
governance suggestions previously made. The Sarbanes-Oxley Act of 2002 requires:
 directors, executive officers and large shareholders of public issuers to report

Transactions in the issuer’s equity securities within two business days of a transaction.
 pre-clearance procedures for transactions in the issuer’s equity securities;
 the responsibilities the company will take for completing filings;
 the requirement (or encouragement) to use a specified broker for transactions in the
Issuer’s securities or the certifications required from brokers if no specific broker is
required;
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 the applicability of the rules to persons with business or family relations to the insider;
and
 sanctions for failure to make timely filings
We will see in the Indian context several of the good governance regulations for their relevance
and their reason to exist on the statute and further whether they need to be divorced from the
mandatory/penal consequences of the regulations.
A. Officer, director and substantial shareholder to disclose their holding on certain events
or at certain intervals.
There should be some coordination between the requirements of reporting at the 5% level with
the requirements of the takeover code. In fact the takeover reporting is broader in some respects
since it mandates reporting by any person over certain thresholds and also requires reporting by
a group a concept not introduced in these regulations. However, the insider trading regulations
provide for disclosure of smaller amounts and even provide for disclosure on selling shares
(something which the takeover code does not mandate). It is suggested that a purchase disclosure
made under either regulations (with the same or higher level of disclosure) should be deemed to
be good disclosure under the other. Additionally, this author suggests the introduction of
short swing profits.
Short Swing’ profits: There should be a regulation introduced in the Insider Trading regulations
which compels an insider to disgorge or turn in profits made by insiders to the company for any
transaction in equity based securities in the company’s securities (including its parents or
subsidiary’s shares) if both the buy and sell side of the transaction is entered into within six
months of the other. Such a liability should be imposed without any necessity for guilt
or wrongfulness. This would be a provision which would get automatically attracted as soon as
two things are established. First, the fact of being a designated insider. And second, the fact that
the same securities were bought and sold within six months of each other. Such a regulation
would be relatively easy to administer, since intent of the person is immaterial. Merely the fact
of the trade is sufficient to take action. Thus the appearance of impropriety is removed from the
markets.
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B. Restrict trading by insiders within a certain period of time i.e. before corporate
announcements, buybacks etc. are made.
Unfortunately, the wordings of the regulations are so broad, that it would chill trading in
sometimes rather large windows. The regulation should not asphyxiate trading by insiders. As
we have seen before trading by insiders and employees aligns their interests with those of the
company and should been couraged if there is no improper behaviour. Let us study the restriction
for its scope.
Trading window
The company shall specify a trading period, to be called "Trading Window", for trading in the
company’s securities. The trading window shall be closed during the time the information
is unpublished. When the trading window is closed, the employees / directors shall not trade
in the company's securities in such period
The trading window shall be, inter alia, closed at the time of:-
(a) Declaration of Financial results (quarterly, half-yearly and annual)
(b) Declaration of dividends (interim and final)
(c) Issue of securities by way of public/ rights/bonus etc.
(d) Any major expansion plans or execution of new projects
(e) Amalgamation, mergers, takeovers and buy-back
(f) Disposal of whole or substantially whole of the undertaking
(g) Any changes in policies, plans or operations of the company
Issuance of bonus/rights shares has no real effect on the price of the security and therefore there
is no need to have a restricted window for that purpose. (d) to (g) are too broad and could cause
unnecessary problems. To give an example, a company makes a large gas find, in one grid. It
does not want to close that fact so that it can buy the neighbouring grids at a bargain price. It
therefore, for a valid business purpose keeps the find a secret for six months. Even though the
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directors who know about the find would be expressly prohibited from trading in the securities
under the substantive provisions of the regulations, all employees (who do not know) too would
be barred from trading for six months in the shares of the company. This is obviously not
an unusual hypothetical. An auto company comes out with secretive plans for introducing ‘new
age’ models almost every month. Such companies would never allow employees to trade in their
shares because there is a closed window for any ‘execution of new projects’. Let me clarify, that
this does not in any way effect the substantive provisions which restrict insider trading which
of course is prohibited.
C. Pre clearance of trades
Certain provisions are made for clearing of trades if certain officers/employees engage in
shares of their own company. All directors/officers /designated employees of the company who
intend to deal in the securities of the company (above a minimum threshold limit to be decided
by the company) should pre-clear the transactions as per the pre-dealing procedure as described
hereunder:
An application may be made in such form as the company may notify in this regard, to the
Compliance officer indicating the estimated number of securities that the designated employee/
officer/ director intends to deal in, the details as to the depository with which he has a security
account, the details as to the securities in such depository mode and such other details as may be
required by any rule made by the company in this behalf.
All directors/officers /designated employees shall execute their order in respect of securities of
the company within one week after the approval of pre-clearance is given. If the order is not
executed within one week after the approval is given the employee/ director must pre clear the
transaction again. All directors/officers /designated employees shall hold their investments in
securities for a minimum period of 30 days in order to be considered as being held
for investment purposes. The holding period shall also apply to subscription in the primary
market (IPOs). In the case of IPOs, the holding period would commence when the securities are
actually allotted.
Once securities are pre-cleared, there is no necessity of prescribing just one week for the trades
to occur. This would expose the employees / officers to unnecessary market risk. Personal
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experience from the market seems to suggest that it is not uncommon in large institutions for
officers to get their approval for trading after weeks from the date of application. Given a one
week window to execute their orders would penalize employees with market timing risk while
trading in their own company’s stock. The company should be free to determine their own
methodology and the window permitting execution of trade should certainly be restrictive
regarding the quantity and the time frame should be far less material. A suggestion is already
made for very senior officers (CEO, CFO, CIO, Company Secretary Etc.) to come under the
short swing rule. The other employees should be subject to a holding period and it should be
specified that if they violate the term–they would need to disgorge any profits made in the
period. Even absent mens rea , such a strict liability would still pass muster in a court of law
because it is not truly penal in nature – more remedial and process oriented.
D. Reporting of ‘process’ to CEO/MD
There is clause which requires the CEO/MD to consider all insider trades and accompanying
documents. The Compliance officer shall place before the Managing Director / Chief Executive
Officer or a committee specified by the company, on a monthly basis all the details of the dealing
in the securities by employees / director / officer of the company and the accompanying
documents that such persons had executed under the pre-dealing procedure as envisaged in this
code. This kind of time for such a routine process by an MD is wasteful and unworkable–it is a
totally unworkable clause for large companies and such micromanagement should not be part
of corporate governance, leave alone regulations. This provision ought to be scrapped.
Other entities having access to inside information
Intermediaries in the capital markets like underwriters, lawyers, auditors are also required to
comply with Part B of the first Schedule. The regulation of these other entities is overworked and
over regulated at times and operationally impossible at other times. For instance having
a compliance officer who inspects insider trades and grants pre-clearance for trades of securities
of employees is absolutely uncalled for. To give an example practically every law firm advices
listed companies. To have a compliance officer in every firm and monitoring of trades by each
employee is completely unworkable–and even partial compliance will never happen. The fact
that it is coupled with penalties of 10 years in jail, suspension, fines etc. should create a powerful
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argument for removal of these ‘corporate governance’ penalties for non corporate and in
particular because adequate remedies are in place for actual insider trading. Certain other
provisions are made for the intermediaries which need to be relooked at.
E. Confidential Files
“Files containing confidential information shall be kept secure. Computer files must have
adequate security of login and pass word etc.” To mandate passwords/logins for securing
confidential files is nonsensical, to say the least. It would create workings of entire organizations
which are built on sharing information of confidential files unworkable. To again use the law
firm example, if confidential files are not shared effectively between colleagues, effectively
assisting a client may not be possible. It should be the discretion of the company/firm to bar
access to such information as it sees fit. Such micromanagement should be frowned upon.
b) OTHER RECOMMENDATIONS:
There are a few further provisions the Indian legislature/regulator should consider adding to the
existing framework of regulations to reduce the occurrence of insider trading.
I. Designated or qualified brokers
To facilitate compliance with the new reporting of transactions, issuers should either designate a
single broker through whom all transactions in issuer stock by insiders must be completed or
require insiders to use only brokers who will agree to the procedures set out by the company. A
designated broker can help ensure compliance with the company’s preclearance procedures and
reporting obligations by monitoring all transactions and reporting them promptly to the issuer. If
designating a single broker is not feasible, issuers should require insiders to obtain a certification
from their broker that the broker will:
• Verify with the issuer that each transaction entered on behalf of the insider was precleared; and
• Report immediately to the issuer the details of each of the insider’s transactions in the Issuer’s
securities.
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II. Derivatives amendments
Parts of the regulations refer to ‘shares’ for the purpose of proscription while they should
prohibit “securities” trading. For instance, one could, using derivatives, economically sell the
shares without physically trading in those shares. Similarly, one can easily create synthetic
securities with the same economic impact as an equity share of a company. By reclassifying
shares into securities, one can eliminate the problem because securities are defined to include
equity, quasi-equity, derivatives and any combination of the three. Pure debt instruments can be
excluded specifically from the regulations. Similarly, under Regulation 13 the disclosure
requirements should refer to not merely a 5% stake in the equity but also to a minimum stake in
derivatives of the company’s securities. The minimum can be a rupee amount of the market
value of the derivative (since calculating 5% of the derivatives market is neither possible nor if
possible not meaningful)
III. Civil private cause of action by contemporaneous traders
People trading in the market contemporaneously - not just the regulator or the counterparties to
the insider should also have specific powers to rescind trades and charge damages to the insiders
during the period when they traded. This will provide a broader remedy and will have many
people exerting an economic pressure on the violator to make his trades unviable.
IV. Proactive Stock Exchanges
The stock exchanges should take up at least a substantial burden of filing action against persons
violating the regulations. Since the Rules and regulations of the stock exchanges are considered
‘enactment’, and court judgments13 have found exchange regulations to have the force of law–
They could easily enforce the requirements of the listing terms or the rules and regulations
by seeking civil action in courts against persons or companies who violate such regulations. The
exchanges should also better coordinate monitoring and surveillance of listed companies to track
unusual activity in the stock of a company across markets for traces of insider dealings or
manipulation.
V. Rescission
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One author has suggested that a contract of sale or purchase by an insider be declared void by the
counterparty to a trade under the Indian Contract Act (this is besides the powers SEBI has to
annul the trade under Regulation 11). Though legally feasible, it raises impossible burdens in
today’s virtually anonymous capital markets. For instance if an investor had bought 100 shares
of the company during the period when the insider trading took place, it would be difficult to
determine the counterparty to the insider. And in any case even if the counterparty to the trade is
identified, the insider has not only hurt his trade counterparty but also the market as a whole.14
By buying (or selling) shares the insider would have raised (or lowered) the price of the shares so
bought (or sold) and thus would affect the rights of every person who bought or sold
contemporaneously.
VI. Tippee liability
The regulations prohibit persons from tipping people about inside information by insiders i.e.
the tipper. However, there seems to be no liability for a person who improperly receives a tip i.e.
a tippee from trading. There is a vague prohibition against ‘procurement’ of information.
However, it does not clearly prohibit a tippee from trading.
VII. Bounty system
Section 21A (e) of the American Securities Exchange Act of 1934 authorizes the Securities and
Exchange Commission to award a bounty to a person who provides information leading to the
recovery of a civil penalty from an insider trader, from a person who "tipped" information to an
insider trader, or from a person who directly or indirectly controlled an insider trader. This
could be a useful addition to cracking into new cases of insider activity.
The mystery penal clause
In the schedule, clause 7.1 of Insider Trading Regulations penalizes violation of the regulations
and whistle blowing duties of senior officers. It is not clear whether the ‘corporate governance’
schedule is included in the duty to report a violation i.e. does it include a procedural violation as
well. However, a look at Section 14 clears all doubts that one can go to jail for 10 years for
violating simple or Minor process oriented details. A person who violates provisions of
regulation 12 shall be liable for action under Section 11 or 11 Band/or Section 24 of the Act.
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This in a country where the penalty for rape could be as low as 7 years. Maybe, this is
overstating the case, because a minor violation would not really be referred criminally. But then,
why not make the entire Schedule optional. Let companies make a standardized disclosure in
their annual report as to how much of the Schedule they are in compliance with and what they
are not.
c) SOME GOOD PRACTICES TO DEAL WITH INSIDER TRADING
 Adopt a code of conduct for disclosure of UPSI; ensure transparency generally by

limiting selective disclosures;
 Adopt a code of conduct for trading by employees and other insiders; Set up trading
windows and approval mechanisms for designated trades;
 Designate a compliance officer for administering the insider trading code of conduct;
Educate employees about the importance of insider trading regulation;
 Limit the flow of information during sensitive periods such as a board meeting for
consideration of financial information or during negotiations for significant corporate
transactions and the like;
 Prepare for a situation involving leakage of sensitive information;
 Establish defensive mechanisms, where applicable, such as Chinese walls and trading
plans
128
6.3 PRECAUTIONS
How To Prevent Insider Trading In Companies –Precautions to be taken
93
Ethics Officers of the company, in coordination with the designated compliance officer of
the company who has to enforce the provisions of Prevention of Insider Trading (PTI), have to
educate the company employees on the consequences of insider trading which would invite
both disciplinary action and criminal action. They have to ensure that sensitive information
which is privy to the Board is not leaked out by employees who are privy to such
information. Board agenda, Board minutes, etc. pertaining to price sensitive information or any
company decision which would impact the prices of securities of the company in the share
market should not be circulated amongst the board members through emails, etc. These
communications should be sent in sealed covers with the inscription on the envelope “To be
opened by addressee only”. Computer files have to be secured through passwords. For the
window closing and reopening, proper announcements have to be made to the employees
through internal mike system.
The designated compliance officer has to forward complaints about Insider Trading to the Ethics
officers for detailed preliminary investigation before reporting the matter to the SEBI.
Ensure that there provisions in the code of conduct and disciplinary rules for taking disciplinary
action against the employees who violate the provisions of Insider Trading Regulations.
Ensure that employees of outsider law firms like KPMG, etc. do not get access to any sensitive
information from insiders.
Ensure that the compliance officer being appointed by the company is a person of absolute
integrity and functions independently, reporting directly to the CEO.
93
https://www.academia.edu/4220805/Ethics_Management_Insider_trading_a_menace_to_corporate_governane
129
Exception for due diligence94
The Insider Trading Regulations recognise some practical reality of commercial transactions.
Prospective investors could often require non-public information about a company in order to
assess the merits of a particular transaction. In these situations, investors look to obtain
unpublished price sensitive information not for insider trading but for due diligence on a
company’s finances and business. Taking these factors into account, Regulation 3(3) of the
Insider Trading Regulations allows for firms to communicate unpublished price sensitive
information in connection with a contemplated transaction subject to certain conditions:
– for transactions that would entail an obligation to make an open offer under the takeover
regulations laid down by the Securities and Exchange Board of India (“SEBI”), only if the board
of directors of the company is of the informed opinion that the proposed transaction is in the best
interests of the company; or
– for transactions that would not attract the obligation to make an open offer under the takeover
regulations, if the board of directors of the company is of the informed opinion that the proposed
transaction is in the best interests of the company and the information that constitutes
unpublished price sensitive information (and is to be communicated to proposed investors) is
made generally available at least two trading days prior to the proposed transaction being
effected.
This clause has been included to ensure that in an open offer, all the information necessary to
enable an informed divestment or retention decision by public shareholders is made available to
all shareholders in the letter of offer under the takeover regulations.
The second point ensures that where the proposed transaction is for the benefit of the company
(even though it’s not a regulatory mandate), the board of directors ensures that there is no
information asymmetry in the market.
94
http://blog.mylaw.net/what-does-insider-trading-mean-in-2015/
130
BIBLIOGRAPHY
PRIMARY SOURCES
STATUTES
1. Criminal Justice Act, 1993

2. Financial Services and Markets Act, 2000
3. The Companies Act, 2013
4. The Companies Act,1956
5. The Securities and Exchange Act, 1934
6. The Securities and Exchange Board of India Act, 1992
7. United States Codes
REGULATIONS
1. The SEBI ( Prohibition of Insider Trading ) Regulations,1992

2. The SEBI ( Prohibition of Insider Trading ) Regulations,2015
3. Market Abuse Directive,2003
REPORTS
1. Criminal Law Reporter- available at-

http://www.coblentzlaw.com/images/uploads/content/misappropriation-theory-in-insider-
trading-prosecutions.pdf
2. Justice Sodhi Committee Report available at
http://www.sebi.gov.in/sebiweb/home/detail/26940/yes/PR-Justice-Sodhi-Committee-on-
Insider-Trading-Regulations-submits-report-to-SEBI
131
SECONDARY SOURCES
ARTICLES
1. Corporate Finance Alert –Share Repurchases available at-

http://www.skadden.com/newsletters/Corporate_Finance_Alert_Share_Repurchases.pdf
2. Insider Trading in capital Markets- An Overview-Available at
www.manupatrafast.com/articles/popopenarticles.aspx
3. Directors Dealing, Market Efficiency and Strategic Insider Trading in the German Stock
Market. Available at www.mediatum2.ub.tum.de/download/.pdf
4. Dr.Raj Mal Dungawat “Insider Trading: Legal Perspective with reference to India ‘12
M>D>U.L.j2(2007)
5. DR. Md. Abdul Jalil, Ferdous Azam and Muhammad Khalilur Ramman;
“Implementation mechanism of Ethics in Business Organizations” , International
Business Research , Vol. 3, No. 4; October 2010
6. Laura Nyantung Beny, “Insider Trading Laws and Stock Markets Around the World: An
Empirical Contribution to the Theoretical Law and Economics Debate”, (2007) Journal of
Corporation Law 237
7. The Global Crack down on insider Trading: A Silver Linning to the “ Great Recession “
available at www.repository.law.indianaedu
8. A Golden Comparison of Insider Trading Regulations by James H .Thomson
(International Journal of Accounting and Financial Reporting) available at
www.macrothink.org/journalIndex.php/ijafr/article/viewfile
9. Raj Rajaratnam and Insider Trading available at http://sevenpillarsinstitute.org/case-
studies/raj-rajaratnam-and-insider-trading-2
10. Unveiling Insider Trading available at
http://psalegal.com/upload/publication/assocFile/capitalmarketbulletin-
issueiii1288783630.pdf
JOURNAL
1. International Multimodal Research Journal

2. Journal of Corporate Executives
132
3. Company Law Journal
4. New York Law Journal
5. Journal of Corporate Executives
6. Indian Journal of International Law
SPEECHES
Mr. Thomas C. Newkirk, Associate Director, Division of Enforcement, SEC on

September 19, 1998 http://www.sec.gov/news/ speech/speecharchive/1998/spch221.html
BOOKS
1. Dr. Avatar Singh, Company Law ( Eastern Book Company 2013 edition)
2. C S Bhuwneshwar Mishra , Law relating to Insider Trading ( Taxmann’s 2015 Edition)
WEBSITES
1. www.nishithdesai.com/fileadmin/user_upload/pdfs/Research%20papers/Insider_Trading
_RegulationAprimer.pdf
2. Defining Insider Trading- available athttp://www.investopedia.com
3. Insider Trading available at http://www.econlib.org/library/Enc/insiderTrading.html
4. Historical Development of Laws on Inider Trading In India-Available at
www.shodhganga.inflibnet.ac.in
5. www.thedeal.com/content/ regulatory/us-insider-trading-vs-uk-market-abuse-rules.php
6. Insider Dealing –Effects on the Capital Market, available at
http://www.fma.gv.at/en/companies/stock-exchange-securities-trading/special-
topics/insider-dealing-effecte-on-the-capital-market.html
7. Insider Trading available athttp://www.sec.gov/answers.insider.html
8. www.caclubindia.com/articles/trading-plan-under-sebi-prohibition-of-insider-trading-
regulations-2015-25770.asp
9. http://www.econlib.org/library/Enc/insiderTrading.html
10. http://corporatelawreporter.com/tackle-insider-trading-india-analysis-current-laws-
regulations-judicial-decissions-8603.html
133

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AMITY LAW SCHOOL, AMITY UNIVERSITY RAJASTHAN, JAIPUR

INSIDER TRADING REGULATIONS & INTERNATIONAL

A Dissertation submitted to in Partial fulfilment for the Award of degree of

Enrollment No. - A21511112044

Under the Guidance and Supervision of

Ms Mona Mahecha (Assistant Professor)

DATE: 10/03/2017 Miss Mona Mahecha

I. List of Abbreviations ……………………………………………........ 7-8

2) Legislative And Regulatory Regime Indian Prespective 37

3) SEBI (PIT) Regulations, 2015 58

5) Judicial Pronouncements 117

6.1 Conclusion 150

XI. Bibliography .................................................................................... 165

BOD- Board of Directors

CDR Corporate Debt Restructuring

C.F.R Code of Federal Regulations

CJA Criminal Justice Act

C.M.B Capital Market Bulletin

C.L. Cornell Law Review

CPC Code of Civil Procedure, 1908

CompL.J Company Law Journal

FUTP Fraudulent and Unfair Trade Practices

FSA UK Financial Services Authority

FSMA Financial Services and Markets Act 2000

IOSCO International Organization of Securities Commission

ICDR Issue of Capital and Disclosure Requirements

IPO Initial Public Offer

JCE Journal of Corporate Executive

MAD Market Abuse Directive

PIT Prohibition of Insider Trading

PSI Price sensitive information

SAT Securities Appellate Tribunal

SEBI Securities and Exchange Board of India

SEC Securities Exchange Commission

SRO Self-Regulatory Organisations

U.S.C United States Codes

UPSI Unpublished price sensitive information

U.S.R Unites States Reporter

 Abhijit Mahajan v. Infrastructure projects limited

 In re Cady, Roberts & Co

 Dilip S Pendse vs. SEBI

 Gujarat NRE Mineral Resources Ltd. v. SEBI

 Harish K. vaid v. SEBI

 Hindustan Lever Ltd v. SEBI

 KLG Capital services limited v. SEBI

 Polaris Software lab limited v. SEBI

 Palred Technologies Limited v. SEBI

 Rakesh Agarwal v. SEBI

 Reliance Industries Limited vs. Securities and Exchange Board of India

 Samir Arora v SEBI

 SEC v. Rajat Gupta and RajRatnam

 SEC v. Texas Gulf Sulphur Coa

 Securities Exchange Commission v. Raj Rajaratnam

 Securities Exchange Commision v. Texas Gulf Sulphur Company

 Securities Exchange Commission v. Investors Management Company

 Securities Exchange Commission v. Land

 United States v. O’Hagan

 V.K. Kaul v. The Adjudicating Officer, SEBI

 Wipro finance ltd v SEBI

A. “ Merger Announcements and Insider Trading Activity in India: An Empirical

B. “ Market Imperfections and Regulatory Intervention: The Case of Insider Trading

D. “ Phillip Anthony O‟Hara; “Insider trading in financial markets: legality, ethics,

1. To understand the concept, meaning, drawbacks of Insider trading in today’s time.

3. To analyze the merits and demerits of Insider trading.