Insider trading is a common phenomenon, known as a transgression wherein, trade of securities of the various companies is taken up by the people, who by righteousness of their work, have access to the contrarily non-public information, which could be considered as an important facet for making decisions on investment.[i] When insiders, e.g. herein referred as the key employees or generally the executives who have the key to the critical data about the organization, use it for trading with respect to the company’s stocks or even securities, it is termed as insider trading and this is particularly highly criticized by the “Securities and Exchange Board of India” in order to bolster fair dealings in the market for the advantage of the common investor inter alia.

For having a track on any insider trade, SEBI on the first attempt persue to make out who is actually an insider, which ordinarily is a key/crucial managerial personnel of a company board or listed company or even that of the auditors along with the workforce handling financial or certain sensitive data and information, promoters as well as persons in relation to promoters. Not only this but also the close relatives of these officials are and could be considered persons having relation with insiders and therefore can have approach to such information. Furthermore, another crucial facet is clear perception as to what actually makes up to be known as unpublished price sensitive data and information. At last, it observes the fact as to who traded on the footing of the data and information.

Words insider trading written on a book

Evolution of rules for prevention of Insider Trading

The very first and foremost law was PIT regulation,[ii] which basically required the companies to have a standard model code of conduct so as to restrict and hamper leakage of price sensitive data and information, that seemed important in value Later, in  the year 2015, on the blueprint of of Justice NK Sodhi committee’s proposition regarding the model code of conduct, that it is supposed to be principle based and not rule based. The most contemporary change took place after the panel report of TK Vishwanathan. Starting from April 2019, organisations are required to have a policy as well as procedure for the purpose of transacting inquiry into proper incidents of exposure of material information. Then, it was generally prohibited and restricted to communicate and have an easy access and find “Unpublished price sensitive information (UPSI).” [iii]

Critical Analysis

Before the Covid-19 pandemic and such enormous situation, sensitive accords were known   to attendees as well as a to a few selected ones in a company. Now, that the technical  support assistance or the tech savvy person to say, who the chairman won’t definitely recognise might be having an inside line regarding the board’s critical calls, and this is apparently taking place owing to the meetings of director generally taking place on video conference. Furthermore, the companies are realizing this, ordering their IT employees to fulfil with their rules regarding the   prevention of insider trading.[iv] As per the insider trading rules by SEBI, each and every company essentially is required to maintain its employees as well as third-party vendors’ database who may be in possession of UPSI.

People who are in such list are known as designated individuals and they are also subject to various compliance requirements. Not only this, Immediate relatives are also not permitted to buy or even sell the stock pertaining to the company, while in possession or ownership of any specific insider information.

Recent instances

Many cases have occurred lately wherein the information furnished to promoter organization and groups have fallen into spotlight. Some time back, Cyrus Mistry, “the past Chairman of Tata Sons,” had pointed out that the information with respect to the Tata group companies was actually being shared with Ratan Tata.

SpiceJet insider trading case

Markets regulator SEBI has recently levied a penalty of Rs 35 lakh on two individuals for indulding in share trading of SpiceJetNSE on the pretext of UPSI, which is related to the financial-results. The investigative authorities found that the offender in his official capacity actually had access to UPSI regarding the financial position, communication to his brother regarding the same has been initiated and earnings of the organization on the basis of this information, he had bought 3,100 shares, thereby violating the provisions of insider trading norms.[v]

Impounding of  Rs 3.83 crore by SEBI

SEBI, recently ordered to seize Rs 3.83 crore from the Managing Director as well as CEO of Dynamatic Technologies in a case of insider trading. During the investigation, it was found by the regulator that this particular person had actually traded the shares of the company while he was in dominion of “UPSI (Unpublished Price Sensitive Information).” Therefore, as reported by SEBI, this individual traded on the footing of UPSI and also averted loss on account of decline in share price which were due to the revelation of the “consolidated financial results” on quarterly basis, of DTL.[vi]

The Way Forward

Presently, the companies are going through a tough phase owing to the COVID-19 pandemic. Insider trading is quite difficult to discover and punish, be it any jurisdiction, however the certitude being that SEBI  has actually not been entrusted with few primary investigative  and analytical powers is an extensive inference with resect to the low prosecution.[vii] It was only in 2014 that SEBI was acknowledged the powers to call for the transcripts of phone data. But, in actuality SEBI does not even have such power so as to monitor or tap phone records. Previous year, SEBI gave a legal status to an informant system, which was supposed to bring in benefits with regards to obtaining better conviction.

One of the evident impacts of this pandemic has definitely been on worldwide securities markets. Furthermore, the effect of bank frauds, trade-wars as well as liquidity problems alongwith the dilution of rupee, all caved  into the financial as well as stock markets with this COVID outbreak.

In such an unusual phase, insider trades might not be constrained solely to customary company insiders. In the late years, SEBI has come up with enforcement as well as investigations also, through the use of technology in order to augment surveillance. Nonetheless, the pandemic has no doubt, put forth exclusive provocations to SEBI on this regard. Though, the listed companies are supposed to make admissions of material affairs, it will still remain a pragmatic ultimatum to evaluate or emphatically articulate the conceivable impact of this ever-changing catastrophe on shareholders.

This obstacle is additionally combined by the actuality that compliance of financial outcomes have been extended further by SEBI, to aid with conformity duties and encrumbrances during the times of Covid-19, which implies that the cessation of trading window was prolongated, unless peculiarly excluded by the regulator or even case to case exclusions from the side of compliance officer. Last but not the least , without the existence of major important mechanisms of the trade, for eg- the powers with respect to phone tapping, SEBI will, for sure, find it formidable to safeguard sufficient convincing evidentiary information and data, at a specific time when governmental lockdowns have administered protocols regarding work from home agreements considerably, negotiating on the traditional mechanisms used by listed companies so as to safeguard their information.[viii] Thus, it is interpretative companies as well as regulators codify new elucidation to address such exclusive concerns. Furthermore, for SEBI to take into consideration proactive issuance, explanatory recommendations that set the path for expected envisaged market conduct.

  • With advanced inspection from SEBI in the present era, the prominent hazards which insider trading causes could cost over and above than the monetary or pecuniary penalties being imposed.
  • This sanctions that investors as well as listed companies need to interact not only with their employees but with representatives as well, on the footing of ‘need to know’ whilst rigorously supervening their corresponding code of conduct.
  • The significance of ascertaining the fact that if one is in the retention of UPSI preceding to investing, could be aggravated. Analysis of ‘price-sensitivity’ of is a combined interrogation of fact as well as law, and as a result should be actually run through past legal professional experts.[ix]
  • Administered use of communication channels, affiliating IT related security protocols and making sure that employees are following and adhering to such regulations as well as measures is very crucial. Specifically, while promulgating data, listed companies must assure themselves that such data is provided on platforms which are non-biased.
  • Irrespective of the obstacles in application, the SEBI instructions on trading window limitations are a footstep in the correct direction. Whether there is COVID or not, each and every stakeholder should search for mechanisms in order to function within the given framework. Such steps will surely be a stepping stone towards fulfilment of the objectives with proper authoritativeness and efficacy.


[i] ‘Definition of Insider Trading’, The Economic Times,

[ii] Prohibition of Insider Trading Regulations, 1992

[iii] Jayshree P. Upadhyay, ‘How India cracks down on Insider Trading’, Jan. 28th, 2020.

[iv] Ibid.

[v] PTI, ‘SEBI fines two persons in Spice Jet Insider trading case’, The Economic Times, May 29, 2020.

[vi] Outlook India, ‘SEBI orders impounding of over 3.83 crore in Insider Trading Case’,

[vii] Sandip Bhagat, Jabarati Chandra, etc., ‘COVID-19: Certain Issues to consider for Listed Indian Companies’,

[viii] Ibid.

[ix] ‘Analysis of Insider/Price Sensitive Information’,

Author Name:- 

Navdha Maheshwari
MBA Law (1st year)
NMIMS Mumbai
E-mail- [email protected]
Saloni Suhalka
MBA Law (1st year)
NMIMS Mumbai
E-mail- [email protected]

Author Bio

Qualification: LL.B / Advocate
Company: N/A
Location: Mumbai, Maharashtra, IN
Member Since: 21 Jul 2020 | Total Posts: 1

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March 2021