Insider Trading is the buying, selling, or dealing in securities by any person while in possession of unpublished price-sensitive information (UPSI) relating to those securities, or the communication of such information to any other person for the purpose of trading. Under Indian law, insider trading is prohibited by Regulation 3 of the SEBI (Prohibition of Insider Trading) Regulations, 2015, and violations can result in disgorgement of profits, market access bans, monetary penalties up to Rs 25 crore, and criminal prosecution with imprisonment up to 10 years.
Legal definition
The SEBI (Prohibition of Insider Trading) Regulations, 2015 (PIT Regulations) define the key concepts and prohibitions:
Regulation 3(1): "No insider shall trade in securities that are listed or proposed to be listed on a stock exchange when in possession of unpublished price sensitive information."
Regulation 2(1)(g): "'insider' means any person who is: (i) a connected person; or (ii) in possession of or having access to unpublished price sensitive information."
Regulation 2(1)(n): "'unpublished price sensitive information' means any information, relating to a company or its securities, directly or indirectly, that is not generally available which upon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..." This includes information relating to financial results, dividends, changes in capital structure, mergers, demergers, acquisitions, delisting, disposals, material agreements, and changes in key managerial personnel.
Regulation 2(1)(d): "'connected person' means — (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, partner, or employee, of the company or holds any position including a professional or business relationship between himself and the company..."
The Regulations create three distinct prohibitions:
- Regulation 3: Prohibition on insider trading — no insider shall trade while in possession of UPSI
- Regulation 4: Prohibition on communication of UPSI — no insider shall communicate, provide, or allow access to UPSI to any person except where required for legitimate purposes, performance of duties, or discharge of legal obligations
- Regulation 5: Prohibition on procuring UPSI — no person shall procure or cause the communication of UPSI from an insider
How courts have interpreted this term
SEBI v. Kishore R. Ajmera [(2016) 6 SCC 368]
The Supreme Court upheld SEBI's approach of relying on circumstantial evidence and the preponderance of probability standard in insider trading cases. The Court observed that "insider trading, by its very nature, is committed by stealth and is difficult to prove by direct evidence." The bench of Justices Ranjan Gogoi and Prafulla C. Pant held that SEBI is entitled to draw adverse inferences from trading patterns, the timing of trades relative to the availability of UPSI, and the connections between the trader and the insider. This ruling established that the standard of proof in SEBI adjudication proceedings is the preponderance of probability, not beyond reasonable doubt.
Balram Garg v. SEBI [(2022) 9 SCC 425]
The Supreme Court examined the scope of "connected persons" under the PIT Regulations. The case involved trading by relatives of a company's promoter (the Garg family of PC Jeweller Ltd.) during a period when UPSI about a bulk deal was available. The Court held that the Regulations create a presumption that connected persons (including immediate relatives) have access to UPSI, and the burden shifts to the trader to demonstrate that they did not possess or access the information when trading. The Court upheld SEBI's orders imposing market bans and disgorgement, reinforcing the strict enforcement approach.
Rakesh Agrawal v. SEBI [(2004) 49 SCL 351, SAT]
The Securities Appellate Tribunal considered whether trading by a managing director during the pendency of an acquisition constituted insider trading. SAT held that while the managing director had traded while in possession of UPSI, the trades were made to facilitate the acquisition itself (acquiring shares to meet the minimum shareholding requirement under the takeover code) and were not motivated by personal profit. SAT set aside SEBI's order, establishing that the purpose and context of trading may be relevant to determining whether a violation has occurred — though this principle has been narrowed by subsequent judicial and regulatory developments.
Why this matters
Insider trading enforcement has become the centrepiece of SEBI's market integrity mandate. With India's equity markets among the most liquid globally and the number of retail investors exceeding 15 crore, the integrity of the price discovery mechanism depends on ensuring that all investors trade on the basis of publicly available information.
For listed companies and their officers, the PIT Regulations create extensive compliance obligations. Companies must maintain a Structured Digital Database (SDD) of all persons with whom UPSI is shared (Regulation 3(5)-(6)), establish a trading window closure mechanism around the time of financial results and other material events (Regulation 4(4)), and ensure that designated persons (directors, key managerial personnel, and employees with access to UPSI) pre-clear their trades and report them within specified timelines. The compliance officer bears personal responsibility for implementing these mechanisms.
For market participants, understanding the breadth of the "connected person" definition is critical. The presumption that connected persons have access to UPSI effectively creates a reverse burden — if a person falls within the connected person definition (including immediate relatives and persons who have been associated with the company in the past six months), they must affirmatively demonstrate that they did not possess UPSI when they traded. This makes compliance particularly challenging for families of promoters and senior executives.
For practitioners, insider trading cases involve a unique intersection of securities law, evidence law, and constitutional rights. The tension between SEBI's enforcement mandate (which requires broad presumptions and circumstantial evidence) and the rights of individuals (including the presumption of innocence and the right against self-incrimination) creates complex litigation. The 2015 PIT Regulations introduced the defence of "trading plans" (Regulation 5) — a mechanism allowing insiders to pre-commit to future trades, thereby insulating themselves from insider trading allegations — though the conditions are stringent and trading plans are rarely used in practice.
Related terms
Regulatory framework:
Related violations:
Related regulators:
Frequently asked questions
What is UPSI (Unpublished Price-Sensitive Information)?
UPSI is defined under Regulation 2(1)(n) of the PIT Regulations as information relating to a company or its securities that is not generally available and which, upon becoming generally available, is likely to materially affect the price. Examples include financial results, dividend declarations, changes in capital structure, mergers or acquisitions, changes in key personnel, and material agreements. Information is considered "generally available" when it is accessible to the public on a non-discriminatory basis — typically through stock exchange filings.
What is the penalty for insider trading in India?
Insider trading attracts three categories of consequences: (a) SEBI adjudication proceedings can result in monetary penalties up to Rs 25 crore or three times the profit made (whichever is higher) under Section 15G of the SEBI Act; (b) SEBI can order disgorgement of unlawful gains and impose market access bans under Section 11B; and (c) criminal prosecution under Section 24 of the SEBI Act can result in imprisonment up to 10 years and fine up to Rs 25 crore. In practice, SEBI primarily uses administrative enforcement (penalties and bans) rather than criminal prosecution.
Can a person be penalised for insider trading based on circumstantial evidence?
Yes. The Supreme Court in SEBI v. Kishore R. Ajmera (2016) 6 SCC 368 held that insider trading is inherently difficult to prove through direct evidence and that SEBI is entitled to rely on circumstantial evidence and draw adverse inferences from trading patterns, timing, and connections to insiders. The standard of proof in SEBI proceedings is preponderance of probability, not beyond reasonable doubt. However, the circumstances must form a coherent chain pointing to the conclusion that the person traded while in possession of UPSI.
Are relatives automatically considered insiders?
Under Regulation 2(1)(d)(ii), "immediate relatives" of connected persons are deemed to be connected persons unless the contrary is established. "Immediate relative" means a spouse, parent, sibling, or child of the connected person, as well as any person sharing the household. This creates a rebuttable presumption — relatives must affirmatively demonstrate that they did not have access to or possession of UPSI at the time of trading, shifting the burden from SEBI to the trader.
This entry is part of the Veritect Indian Legal Glossary, a comprehensive reference of Indian legal terminology grounded in statutory text and judicial interpretation.
Last updated: 2026-03-27. Veritect provides this content for informational purposes and does not constitute legal advice.