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The use of circumstantial evidence in deciding of cases of insider trading has been a uniform practice by all the courts all across the globe.[1] What happens is that in cases of insider trading, direct evidence of such trading are almost impossible to adduce in court as they are mostly verbal and not documentary. Hence in such cases it is of great importance to rely on the circumstantial evidence present as circumstantial evidence is the only evidence that can be presented[2]. This article tries to map the judiciary’s stance on this issue and analyses the relevance which the judiciary associates to circumstantial evidence in cases of insider trading. This article analyses the above-mentioned issue through the lens of landmark case laws and also briefly touches on the stance of judiciaries of other jurisdictions like that of US and Canada.


One of the landmark cases in India which ruled on the issue of circumstantial evidence is that of V. K. Kaul v. SEBI[3]. Mr. Kaul was a non-executive independent director of Ranbaxy. Ranbaxy was holding company of Rexcel and Solus. Rexcel and Solus has a partnership firm named Solrex. Hence, indirectly Ranbaxy was also the parent company of Solrex. A resolution was passed by Solrex on 20thMarch, 2008 to purchase large quantities of shares of OCP (the target company). The execution of this purchase took place of 31stMarch. Now on 26th and 27thMarch, wife of Mr. Kaul purchased large number of shares of OCP and soon sold them after 10 days once the shares prices had rocketed after the large purchase by Solrex. A charge of insider trading was brought against Mr. Kaul. The evidence adduced was the sequence of events, timing of purchase by Mrs. Kaul, constant telephonic conversations between Mr. Kaul and directors of Solrex and use of the same stockbroker by Mr. Kaul’s wife as that used by Solrex. Mr. Kaul contented that the entire evidence was circumstantial and hence was not enough to prove the charge.

The court while deciding this issue relied on its previous judgement in the case of Dilip Pendse[4] and stated that since the charge of insider trading is a serious charge, higher would be the preponderance of probability in proving such a charge[5]. It than went on to cite the landmark US case of America v. Raj Rajaratnam[6] which laid down a test for reliance on circumstantial evidence. The US court had laid down certain factors which were to be kept in mind while relying on circumstantial evidence in insider trading charges. These factors are: access to information, relationship between tipper and tippee, timing of contact, timing of trades, pattern of trades and attempt to conceal the trades or relationship[7]. The court also said that while considering circumstantial evidence, it will not see whether the allegation is the only possibility from the circumstances given but it will see whether there is a high probability of the malpractice taking place or not.

The court in the case of Mr. Kaul, while relying on the above-mentioned factors as laid down in the US case, found Mr. Kaul to be guilty and imposed a penalty on him.


Hence from the above-mentioned cases of various jurisdiction one can see that circumstantial evidence can be considered while bringing and/or deciding a charge of insider trading. However, the weight given by the court to such evidence will depend from case-to-case basis as this would majorly depend on the circumstances/facts of the given case. Also, the court would rule on the basis of preponderance of probabilities and there could be varying degrees of probability with such standard.

It is safe to conclude that all the countries across the globe are dealing with the issue of insider trading in a stringent manner by solidifying their laws against such offenses. Also, the trend of courts can be seen to be uniform when it comes to the question of circumstantial evidence in such cases. Most of the courts have given weight to circumstantial evidence in such cases and have ruled on the charge of insider trading just on the basis of circumstantial evidence. However, this issue has been seen to vary depending on the facts and circumstances of various cases.

[1] Roy and Pauchulo, Canada: Circumstantial Evidence and Insider Trading, Mondaq (June 8, 2020, 20:40),

[2] Ibid.

[3] V.K.Kaul v. SEBI, [2012] 116 SCL 24 (SAT).

[4] Dilip Pendse v. SEBI, Order dated 19/11/2009.

[5] Dilip Pendse v. SEBI, Order dated 19/11/2009.

[6] America v. Raj Rajaratnam, 09 Cr. 1184 (RJH).

[7] America v. Raj Rajaratnam, 09 Cr. 1184 (RJH).

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April 2024