In India, insider trading is basically regulated by SEBI laws which control the whole trading in the national stock exchange. The key purpose of this law is to make sure the traders that no person is gained by trading on ‘insider’ or ‘unpublished’ information. This law also aims to make the information accessible to all the participants. The enforcement of insider trading laws expands market liquidity and reduces the cost of equity. Lawson Insider Trading are found in developed countries where strong trading regulations are adopted. The key purpose of government in the enactment of insider trading laws is that all the participants in the market have the same information. insider trading laws
In India, SEBI (Insider Trading) Regulation, 1992 framed under Section 11 of the SEBI Act, 1992 intends to curb and prevent the threat of insider trading in securities. An insider is a human being who is an accepted member of an organization or a group who has special knowledge concerning his firm. The term ‘insider’ has been defined under Regulation 2(e) of SEBI (Prohibition of Insider Trading) Regulations, 1992. Mostly, the term ‘insider’ can be arranged into three broad categories, which are:
In order to become an insider a person has to fulfil three elements, viz;
SEBI is established as a statutory body which works under the framework of Securities and Exchange Board of India, 1992. The power and roles of SEBI have been discussed under Section 11 of the SEBI Act,1992.
The punishments and penalties for committing insider trading have been defined under Chapter IV-A of the SEBI Act. The penalties have been discussed below in accordance with the SEBI (Amendment) Act, 2002.
Hindustan Lever Limited v. SEBI (1996):
This case is mainly concerning the purchase of Eight lakh shares by HLL of BBLIL from the Unit Trust of India on March 25, 1996. This purchase was made only just two weeks prior to a public statement for a proposed merger of HLL and BBLIL. Upon investigation, it was found by SEBI that HLL was an insider at the time of purchase. Upon investigation, SEBI found that at the time of purchase of shares of BBLIL from UTI, HLL was an insider under Section 2(e) of the 1992 Regulations. HLL filed an appeal before the appellate authority asking on what basis they can be termed as an insider. But after hearing the evidence of HLL, the authority acknowledged the evidence but it was not enough to prove it. Accordingly, the appellate authority found that the SEBI investigations were right.
TISCO case (1992):
In this case, the profit of TISCO for the first half of the financial year 1992-93 was Rs. 50.22 crore in comparison to the profit of Rs. 278.16 crore for the financial year 1991-92. Before the declaration of the half-yearly results, there was intense activity in the trading of shares between October 22, 1992, and October 29, 1992. However, the SENSEX saw a decrease of 8.3% during the same period. The insiders who had the knowledge of the same had manipulated the market to make short sales. Small investors were hit badly. Due to the absenteeism of insider trading regulations in India at that time, it was impossible to investigate the case.
The substantive law in relation to insider trading has been substantially strengthened over the years. SEBI has also obtained greater enforcement powers, which it is likely to exercise, given that insider trading can cause a serious dent on market integrity. Regulations issued by SEBI, their enforcement by SEBI as well as rulings by SAT and many courts have emphasized the need for companies to take serious note of insider trading concerns. In any event, insiders and companies would be well-advised to take measures to not fall in conflict with the legal regime.