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December 2022

Supreme Court Holds that Profit Motive Necessary for Charge of Insider Trading – But with Several Nuances and Riders

By Jayant M. Thakur, Chartered Accountant
Reading Time 12 mins
BACKGROUND

The Supreme Court has recently held that for an insider trading charge to sustain, a profit motive should be established (SEBI vs. Abhijit Rajan, Order dated 19th September, 2022, ((2022) 142 taxmann.com 373)). If it was clear that the trades by an insider, even if in possession of inside information, were clearly to result in losses, at least considering the nature of the information, then the insider trading charge cannot sustain. This makes a material change in the approach to proceedings relating to insider trading. Till now, generally in the framing of the law as well as the approach of SEBI, it was taken for granted that trading by an insider in possession of (or access to) unpublished price sensitive information (UPSI) was ipso facto insider trading, which should result in adverse action such as disgorgement of profits made (or losses avoided), debarment, penalty, etc.

However, as we will see, there are several nuances and riders to this decision as well as further questions that arise in the application of this decision in diverse situations. However, before we go into that, let us consider the broad framework of the regulations relating to insider trading, namely, the SEBI (Prohibition of Insider Trading), Regulations, 2015 (“the Regulations”).


SEBI REGULATIONS RELAT
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