Abstract
Insider trading represents one of the most pernicious forms of corporate misconduct, undermining investor confidence and compromising the integrity of capital markets. In India, the regulatory framework governing insider trading has undergone a marked transformation from the SEBI (Prohibition of Insider Trading) Regulations, 1992 to the more structured 2015 Regulations and subsequent amendments. Complementing this, the Companies Act, 2013, through provisions on directors’ duties, key managerial personnel responsibilities, and corporate disclosures, reinforces the obligation of fair dealing and transparency within companies.
Despite these progressive legal developments, enforcement continues to pose significant challenges. SEBI, as the principal enforcement authority, faces obstacles such as evidentiary limitations, complex corporate shareholding patterns, and difficulties in establishing intent and communication of unpublished price-sensitive information (UPSI). This paper critically examines insider trading as a corporate crime within the Indian securities law framework, focusing on SEBI’s investigative and adjudicatory mechanisms. It analyses landmark cases such as Rakesh Agrawal v. SEBI, Reliance Industries Ltd. v. SEBI, and the Axis Bank Insider Trading Case, evaluating their implications for regulatory consistency and deterrence.
Further, the paper explores how weak corporate governance structures, inadequate compliance systems, and insufficient whistleblower protection dilute the preventive mechanisms envisaged under both SEBI regulations and the Companies Act, 2013. It concludes with reform-oriented suggestions strengthening SEBI’s surveillance through technology integration, clarifying evidentiary standards, enhancing board-level accountability, and aligning India’s insider trading framework with global best practices.
Keywords: Insider Trading, SEBI, Companies Act 2013, Corporate Crime, Securities Law, Enforcement, Corporate Governance.
- Introduction
The integrity of financial markets forms the bedrock of economic stability and investor confidence. When this integrity is compromised by the misuse of confidential information for personal gain, it erodes both market fairness and public trust[1]. Insider tradingthe buying or selling of securities by individuals in possession of unpublished price-sensitive information (UPSI)is one of the most pernicious forms of corporate misconduct. As India’s capital markets expand and technology revolutionizes trading, insider trading practices have become increasingly sophisticated, demanding a robust and transparent regulatory framework[2].
In India, insider trading has evolved from an ethical concern to a codified corporate crime carrying civil and criminal consequences. The Securities and Exchange Board of India (SEBI), established under the SEBI Act, 1992, plays a central role in regulating the securities market and protecting investors. Through the SEBI (Prohibition of Insider Trading) Regulations, 2015 (PIT Regulations), the regulator has sought to align India’s standards with international best practices. Yet, despite repeated amendments and judicial scrutiny, enforcement challenges persist due to evidentiary difficulties, overlapping jurisdictions, and the increasing complexity of trading mechanisms.The regulatory journey against insider trading in India reflects the evolution of the capital market itself. The Sachar Committee Report (1979) and Patel Committee (1986) were instrumental in identifying insider trading as a systemic threat, leading to the first comprehensive regulations in 1992. Subsequent reforms in 2015 and 2019 broadened definitions of “insider,” “connected person,” and “UPSI,” expanding the scope of accountability. These developments illustrate India’s gradual transition toward a proactive, disclosure-driven regulatory regime[3].Complementing SEBI’s framework, the Companies Act, 2013 reinforces the governance dimension of insider trading. Although Section 195 (now omitted) directly addressed insider trading, the Act continues to impose fiduciary duties on directors and officers to act in the best interests of shareholders. Coupled with the Companies (Prevention of Fraudulent and Unlawful Trades) Rules, 2015 and SEBI’s Listing Obligations and Disclosure Requirements (LODR) Regulations, 2015, the Act promotes transparency, timely disclosure, and ethical decision-makingvalues integral to corporate integrity[4].However, enforcement remains SEBI’s Achilles’ heel. Conviction rates for insider trading cases remain low due to the difficulty of proving a direct nexus between UPSI possession and trade execution. Reliance on circumstantial evidence and data analytics, though growing, still lags behind global counterparts such as the U.S. Securities and Exchange Commission (SEC). Moreover, procedural delays and jurisdictional overlaps between SEBI, the Ministry of Corporate Affairs (MCA), and the Serious Fraud Investigation Office (SFIO) undermine the deterrent effect of enforcement. The Adani-Hindenburg controversy (2023) reignited debates on SEBI’s regulatory autonomy and its response time to market irregularities[5].Insider trading must, therefore, be viewed not merely as an economic offense but as a corporate crime that violates fiduciary trust and ethical accountability. It represents the misuse of privileged corporate information by individual’sdirectors, auditors, promoters, or intermediaries for illicit personal gain, distorting the level playing field essential to fair markets. The criminalization of insider trading serves both punitive and preventive functions: deterring unethical behaviour while reinforcing confidence in India’s financial institutions[6].Technological advancement adds another dimension to the challenge. The rise of algorithmic trading, digital communication channels, and social media leaks enables rapid exploitation of UPSI, making detection increasingly complex. SEBI’s Integrated Market Surveillance Platform (IMSP) seeks to monitor such activities through AI-based data analysis, but gaps remain in inter-agency coordination and cross-border enforcement[7].This paper examines insider trading in India as a corporate crime, focusing on SEBI’s enforcement mechanisms and the need for reform. Through an analysis of key judicial decisions such as Hindustan Lever Ltd. v. SEBI (1998), Rakesh Agrawal v. SEBI (2003), and Balram Garg v. SEBI (2022)it assesses how jurisprudence has shaped liability and corporate accountability[8]. The discussion also evaluates the interplay between SEBI’s powers and the Companies Act, 2013, highlighting areas where regulatory overlap impedes efficiency. Ultimately, it argues for reforms that strengthen SEBI’s investigative capacity, enhance coordination, and integrate global best practices to ensure an ethical, transparent, and investor-friendly securities market.
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