Insider trading means possession and misuse of unpublished price sensitive information (UPSI) relating to the securities of the listed companies by the privileged few for their personal gains before the information is published and comes to the notice of investors. Possession of such vital information places them in a position advantageous to them compared to the others in the share market while evaluating the risks involved in the investment. Thereby for the interest and betterment of the civilians insider trading needs to be prohibited.
Keeping this in mind, in the year 1992, Securities and Exchange Board of India (SEBI) formed SEBI (Insider Trading) Regulation, 1992. After the introduction of the Regulation Act, in 2002 it amended and rechristened the regulation to SEBI (Prohibition of Insider Trading), 1992 and finally in the year 2015 it was thoroughly and exhaustively amended to SEBI (Prohibition of Insider Trading) Regulation, 2015 which was applicable from 1st April, 2019.
Rakesh Agrawal v. Securities Exchange Board of India is one of the landmark judgments relating to insider trading. The facts of the case were that Rakesh Agrawal was the managing director of ABS Company Pvt. Ltd. The company was in negotiation with a German company. Rakesh had UPSI of the German company. It was alleged that Rakesh’s brother-in-law had purchased shares of ABS Company and had given it to the German company as an open offer which in turn aided ABS. The 51% of shares that were owned by the German Company were not public, thus, making ABS an insider. SEBI then directed that ABS had violated Section 3 and 4 of SEBI Act and Rakesh was ordered to give Rs. 34 lakhs and SEBI also directed the criminal proceedings against him under section 24 of the SEBI Act. However, when he approached the court, it was concluded that since, he had worked in the best interest of the company the tribunals order was taken back.
Similarly in SEBI v. Sameer C Arora a case of 31st March 2004, Mr. Arora was accused of insider trading. He was prohibited from investing and taking active part in securities market for a period of 5 years. However due to the absence of sufficient evidence the appellate court set aside the order of the tribunal.
One of the largest cases of India in insider trading is Indiabulls insider trading case. In this case, the executive director was accused of unlawfully making Rs. 87 lakhs by trading in Indiabulls, the venture, when having UPSI. The husband and wife both were accused of being insiders and making profit out of the information. The SEBI, then ordered that a Strict Criminal Action be taken against the venture and the husband along with his wife had to give Rs. 87.4 Lakhs both jointly or severally. It was also added that without the prior SEBI permission no debts should be taken.
Largest number of cases of insider trading was in the year 2020-2021 as compared to previous years. In recent days Mr. Kishore Biyani, CEO of the Future Group, along with a few others was found guilty of insider trading. They were hence by SEBI barred from the securities market for one year along with which they had to pay a penalty of more than Rs. 20 Crore. Hopefully, the latest amendments and stringency of the regulation will bring more awareness to the people and prevent them from conducting, or being a part of illegal activities such as insider trading.