The 2015 Regulations reverse the burden once SEBI establishes that an insider possessed UPSI and traded contemporaneously. AMLEGALS builds the defence on the statutory exceptions, the quality of SEBI’s evidence and the factual record of the trade.
Under the SEBI (Prohibition of Insider Trading) Regulations 2015, once SEBI demonstrates that a person was an insider or connected person, that they possessed unpublished price sensitive information and that they traded in the relevant securities during the material period, the burden shifts to the noticee to establish a defence under Regulation 4. The Securities Appellate Tribunal in Reliance Industries v SEBI (2021) and other decisions has examined the quality and sufficiency of this reverse burden.
AMLEGALS approaches insider-trading defence on three fronts: first, whether SEBI’s evidence actually establishes each element — the status of the person, the nature and timing of the information, and the nexus with the trade; second, whether a statutory defence under Regulation 4 applies on the facts; and third, whether the penalty is disproportionate to the violation, measured against the factors in Section 15J. The strategy is set before the SCN reply is filed and carried through adjudication, settlement assessment and appeal.
Analysing whether the information qualifies as UPSI under Regulation 2(1)(n) and whether it was generally available at the time of the trade.
Testing SEBI’s case on whether the person is an insider or connected person and whether possession of UPSI has been established with adequate evidence.
Constructing the defence under Regulation 4, including evidence that the trade was not based on UPSI or was pursuant to a pre-existing obligation.
Auditing Regulation 7 disclosures and code-of-conduct compliance to defend against ancillary charges.
Representing the noticee before the Adjudicating Officer in Section 15G penalty proceedings and at the personal hearing.
Filing appeals under Section 15T to the Securities Appellate Tribunal and under Section 15Z to the Supreme Court.
The SEBI (Prohibition of Insider Trading) Regulations 2015 prohibit three activities: trading while in possession of unpublished price sensitive information (UPSI), communicating UPSI to any person (tipping) and procuring another person to trade on the basis of UPSI. Regulation 4 provides certain defences, including trading pursuant to a trading plan approved under Regulation 5 and transactions that could not reasonably be expected to result in a violation.
SEBI’s surveillance systems monitor unusual price and volume movements in listed securities. When an anomaly coincides with a corporate event, the investigation division examines the trading patterns of insiders, connected persons and their relatives and associates. The investigation may involve call data records, email evidence, bank and demat statements and statements recorded under Section 11C of the SEBI Act. The standard established in SEBI v Rakhi Trading (2018) guides the evidentiary analysis.
Section 15G of the SEBI Act provides a penalty of up to ₹25 crore or three times the profit made, whichever is higher, per contravention of insider trading provisions. In addition, SEBI may issue directions under Section 11B including disgorgement of ill-gotten gains, debarment from the securities market and restraining orders. Criminal prosecution under Section 24 can result in imprisonment up to ten years and a fine up to ₹25 crore.
Regulation 4 lists statutory defences: the trade was pursuant to an approved trading plan (Regulation 5); the insider proves that the UPSI was not the basis for the trade; the trade was an off-market transfer between insiders with the same UPSI; or the trade was involuntary (e.g. margin call). The burden under the 2015 Regulations reverses once SEBI establishes possession of UPSI and contemporaneous trading — the insider must then prove the defence.
Yes. Regulation 7 requires initial and continual disclosures by promoters, KMPs, directors and designated persons. Failure to disclose within the prescribed timelines attracts separate adjudication under Section 15A(b) of the SEBI Act. Code-of-conduct violations under Regulation 9 can also be independently proceeded against. These are frequently charged alongside the substantive insider-trading allegation.
No. No engagement is treated as accepted until conflicts, scope and terms are confirmed in writing.
Share the SCN or investigation details for a confidential preliminary assessment of the insider-trading charge.