Beneath Tip Of The Iceberg: Defenses For Insider Trading

That said, the proviso to Regulation 4(1) cracks open a bona fide route, allowing an insider to prove their innocence. While the proviso codifies a handful of defenses that may seem exhaustive, the inclusive umbrella creates the iceberg. Beneath the tip of this iceberg (i.e., the codified defenses) lies a vast and evolving jurisprudence where courts have widened the protective shield beyond the codified defenses. Legitimate corporate purpose, financial necessity, pre-clearance, lack of motive, market behavior, and proportionality of trades—these are not explicit in the PIT Regulations but have emerged as crucial considerations when adjudicating the charge of insider trading. Time and again, the Courts/Tribunal have recognized that the law cannot be reduced to a rigid checklist and that not every insider is a wrongdoer, nor every trade a betrayal of the market.

So, if the law itself acknowledges that not every trade in possession of UPSI is unlawful, one would contemplate - what else lies beneath the surface—hidden, yet undeniably real?

The Iceberg of Defenses

The Genesis: “On the basis of”

The origins of insider trading regulations in India can be traced to the SEBI (Prohibition of Insider Trading) Regulations, 1992 (“1992 Regulations”), a compendium of “pure vanilla” provisions to bring home the charge of Insider Trading supplemented with a built-in motive requirement, however, the defenses to dispel the charge were not codified. As originally enacted, the 1992 Regulations prohibited Insider Trading “on the basis of” a UPSI, that is to say, only trades based on the UPSI possessed by the Insider, i.e. motivated by it, could attract a charge of Insider Trading.

With this precursor, hangs a question: What encompasses defenses against the charge of Insider Trading? From the standpoint of the 1992 Regulations, before any amendments, one could generically believe that to put their best case forward ought to be the approach. Flowing from this could be showcasing the conduct of an accused so as to establish the lack of motive to trade “on the basis of” UPSI. Interestingly, a legitimate corporate purpose existed as one such pleaded defense that could sufficiently prove the bona fide on the part of an accused wherein the entire proceeds would be channelized to pull the company out of a dire situation. However, DSQ Holdings Ltd. v. SEBI (“DSQ Holdings”), as a precedent arrested attention. The facts unfolded as: DSQ Biotech Ltd. (“Company”), was a struggling company facing continuous losses. Following a takeover, DSQ Holdings Ltd. (“DSQH/Appellant”), a group entity, acquired shares and announced a rights issue (“UPSI”), significantly increasing the Company's paid-up capital. Before the rights issue, the stock price surged abnormally.

What went wrong? SEBI's investigation revealed that DSQH and related entities had acquired a substantial number of shares in the run up to the rights issue i.e., the UPSI. These transactions were funded by DSQH, leading SEBI to conclude that transactions were carried out “on the basis of” UPSI and insider trading had occurred. When the matter was taken up, SEBI observed that the defense of trading for a legitimate corporate purpose would not be available as the Appellant was an insider and privy to the UPSI. Further, the Appellant took an unfair advantage of the said UPSI during the UPSI period as compared to other months – they traded in unusually large quantities. Later, in the Appellate recourse, the Securities Appellate Tribunal (“SAT”) while taking note of the conduct of the Appellant concurred with SEBI and did not find merit in the Appellant's argument about absence of any profit motive as it was clearly established that there was trading on the basis of UPSI which was proved conclusively.

An interesting illustration was also employed by the SAT while adjudicating DSQ Holdings Ltd. borrowed from the judgment of SEC v. David E Lipson stating that any insider who wanted to be able to engage in such trading with impunity would establish an estate plan that required him to trading in his company's stock from time to time. He could then trade “on the basis of” inside information yet defend on the ground that he was also trading in implementation of his estate plan. He would be doing both. Yet even to regard the good and the bad purpose as alternatives is to sugar coat the pill.

Naturally, an accused is ought to wipe accusatory stains/ allegations against him because nobody else would. But what if, after a considerable passage of time, the accused pleads that they were never prompted to do so? This is what transpired in the curious case of Rajiv B. Gandhi & Ors. v. SEBI [“Rajiv B. Gandhi”] wherein Rajiv B. Gandhi (“Appellant No.1”), then CFO of Wockhardt Limited (“Company”), along with his wife and sister (“Appellant No.2 and Appellant No.3”), was accused of insider trading for executing share sales just before the company's quarterly results (“UPSI”) which showed a negative performance compared to the previous quarter and the Appellants sold shares before the market could react to the financial results. The timing of these trades, revolving around key company disclosures were too suspicious to be a mere coincidence raising alarm, and for this reason, SEBI brought home the guilt against the Appellants.

What went downhill? While in appeal before SAT, the Appellants argued that they were never asked for an explanation, but this contention was rejected as the SCN clearly alleged that they traded “on the basis” of the UPSI. Since only the appellants knew the reasons for their trades, it was their responsibility to dispel the allegations leveled due to the “on the basis” standard, by putting their best defense forward. Consequently, the Appellants failed to discharge the onus of rebutting the presumption. Hence, their appeal failed. Had the Appellants fortified a plausible explanation in the form of a defense right from the moment the SCN brought home a charge of Insider Trading, the blot that presumption had stained the Appellant would have been wiped.

In Rakesh Agrawal v. SEBI (“Rakesh Agrawal”) wherein Rakesh Agrawal (“Appellant”), the MD of ABS Ltd. (“Company”) was on a pursuit - to secure the deal with Bayer as a joint venture partner for the Company (“UPSI”). But there was a catch—Bayer would only step in if it held 51% of the Company's shares. The Appellant, with access to UPSI, had acquired shares through his brother-in-law, before the official disclosure of the UPSI; for this reason, SEBI (“Respondent”) levelled a charge of Insider Trading. To his defense, the Appellant argued that since the industry was in crisis, and securing a global player like Bayer was crucial for the Company's survival. Therefore the purchase of shares did not amount to/ result in personal gain. In fact, the same was done to ensure the deal's success: benefiting shareholders, employees, and the Company at large, hence, a legitimate corporate purpose.

When the dispute reached the halls of the SAT, the Tribunal agreed with the Appellant's arguments while observing that the Appellant was acting in the interest of the company by frantically trying to get a joint venture partner to strengthen the company. Therefore, the gain accrued was incidental to the main objective of enhancing the interest of ABS. Moreso, SAT observed, if the Appellant's intention was to make money in the process, he could have cornered much more shares and profited considerably. Therefore, the Appellant could not be considered guilty of Insider Trading. A legitimate corporate purpose while trading on the basis of UPSI, as showcased in Rakesh Agarwal i.e., to act in the interests of the Company and other stakeholders, is one such defense that was duly recognized as a satisfactory defense after considering the entirety of the facts and circumstances of the matter.

The Shift: “When in possession of”

The 2002 amendment to the SEBI (Prohibition of Insider Trading) Regulations, 1992, marked a paradigm shift in SEBI's Enforcement Mechanism. Notably, the phrase “on the basis of” was replaced by “when in possession of”—a shift that brought about an ease in leveling the charge of Insider Trading by removing the burden of proving the existence of motive right at the get go. Thus, broadening the scope of enforcement. Now, the noose to bring a charge of Insider Trading could be tightened around a person trading “while in possession of” a UPSI. However, this was not all, further clarity regarding the Insider Trading jurisprudence pertaining to presumption and burden of proof after this shift was properly discussed in the matter of Mrs. Chandrakala v. SEBI [“Mrs. Chandrakala”].

Caught in the crosshairs, when Mrs. Chandrakala (“Appellant”), the wife of Uttam Kumar Kothari (former promoter) who is the brother of B Popatlal Kothari (Chairman, MD) of Rasi Electrodes Ltd. (“Company”) was accused of trading in the shares of the Company when she was allegedly in possession of the positive information about dividends and a bonus issue (“UPSI”). SEBI contended that her relation with the Chairman, MD of the Company made her a deemed connected person and therefore, colored her with the UPSI. Though the Appellant did not dispute the 'connected person' status and even the existence of UPSI, however, vehemently argued the absence of any motive. Moreover, the Appellant's trading in the ordinary course in accordance with her own commercial wisdom: before, during and after the said UPSI and corporate announcements related to it. She not only bought but also sold shares which belied the said allegation.

Before assessing the facts and circumstances of the matter, the SAT propounded and inked the much-needed jurisprudence of Insider Trading Regulations. Firstly, the prohibition under the 1992 Regulations applies only when an insider trades or deals in securities “on the basis of” any UPSI and not otherwise. That is to say, even after 'the shift', the test remained largely the same - the trades executed should be motivated by the information (UPSI) in the possession of the Insider. Secondly, in terms of 'presumption' upon 'possession', the Tribunal opined that if an Insider trades or deals in securities of a listed company, it may be presumed that he/she traded “on the basis of” UPSI in his/her 'possession' unless contrary to the same is established. Therefore, the burden of proving a situation to dispel the presumption mentioned above lies on the Insider. Lastly and most importantly, if an entity is privy to UPSI where the information is positive, it will tend to purchase shares and not sell the shares prior to the UPSI becoming public.

Upon applying the abovementioned tests and principles to Mrs. Chandrakala, the SAT decided that the Appellant had not traded “on the basis of” the UPSI, which was succinctly proved by her circumstances and, majorly her conduct, i.e., the trading pattern. But the question is: Is it a wholesome defense, enough to dispel the charge of Insider Trading fair and square? Trump the “Presumption” into a case of “Coincidence”? Well, what transpired in Manoj Gaur v. SEBI [“Manoj Gaur”] is of sheer relevance to pair these questions with an answer.

It all started when Manoj Gaur (“Appellant No. 1”), the Chairman of Jaiprakash Associates Ltd. (“Company”) and his family members - wife and brother (“Appellant No. 2 and Appellant No.3”) were accused of Insider Trading for buying shares of the Company before the release of the quarterly financial statements (“UPSI”). SEBI alleged that since Appellant No.1 was privy to the quarterly financial data prior to the public disclosure, he had leaked it to his family members (deemed Connected Persons) so that they could trade while in possession of the UPSI. Once the dispute reached the SAT, the question of the information relating to trial balances (Financial Results) being a UPSI or not was answered in affirmation. Beyond this, the SAT acknowledged that both of them were regularly trading: not only in the scrip of the Company but also the others.

Even if it boiled down to trading in the scrip of the company, the SAT saw no suspicious pattern in the trades of Appellant No. 2 and Appellant No.3 as the former purchased only 1,000 shares, despite already holding 38,985 shares. If her motive was to capitalize on the UPSI, the quantum of her purchase wouldn't have been so minuscule. Lastly, even Appellant No.3's trading behavior did not unearth any exploitation of the UPSI. The Tribunal did not lose sight of the gravity of the charge of Insider Trading while adjudicating the entire facts and circumstances at hand. Firstly, even though Connected Persons (Appellant Nos. 2 & 3), the UPSI could not be traced to their hands. Secondly, their trading pattern (Quantum of Purchase) debunked the presumption that SEBI leveled upon them.

Therefore, Mrs. Chandrakala and Manoj Gaur bring home the answer to the questions posed above: Indeed, conduct i.e., the trading pattern is a wholesome defense and foolproof enough to dispel the charge of Insider Trading to establish innocence. Lastly, an Insider/Connected Person can trump the “Presumption” by proving their bona fide trades as a matter of “Coincidence”.

But is a defense limited to conduct? What if the Iceberg of defenses comprises of extraordinary circumstances such as pressing financial emergency/duress or obligation and the only route available at hand is the bona fide trades of an Insider? Such a dichotomy is best discussed in M/s. N.R. Mercantiles Private Limited v. SEBI [“N.R. Mercantiles”].

A run-through of the facts: Ramsarup Industries Limited (“RIL/Company”) was on the brink of a significant financial move. RIL announced a board meeting where the Company would discuss quarterly financial results and a massive ₹1,150 crore fund-raising plan through FCCBs and preferential allotments (“UPSI”). The stakes were high, and SEBI suspected that not everyone played fair. At the heart of the controversy was Ashish Jhunjhunwala, Chairman and MD of RIL, who controlled two entities, N.R. Mercantiles Pvt. Ltd. and Imtihan Commercial Pvt. Ltd. (“Appellants”). Interestingly, the Appellants held a substantial amount of RIL shares, and SEBI's radar locked on them when both entities sold a combined 1 lakh shares just a day before the board's formal announcement. The timing was too precise to be a coincidence, resultantly fortifying the presumption of Insider Trading.

First and foremost, the SAT cleared the smoke around the information regarding the quarterly results – Upheld, UPSI. By his very position, Jhunjhunwala was privy to the said UPSI. What about the allegation of Insider Trading and the Appellant's defense? The Appellants contended that the trades were a compliance move to meet public shareholding norms under Clause 40-A of the Listing Agreement. More critically, the sales were driven by an urgent need to repay RIL's debts. Ultimately impleading that the trades made were under financial duress and should not be classified as Insider Trading. But the Tribunal was not satisfied with the said defense for two reasons: Firstly, No material on record to show that there was an impending emergency to showcase that the debts of RIL had to be discharged during the closure of the trading window; Secondly, No material on record to suggest that the debts were in fact immediately discharged by RIL after receiving the funds from the Appellants.

In summation, the SAT in N.R. Mercantile never denied the credibility of a defense on the lines of extraordinary circumstances (financial duress) to showcase that the trades were bona fide. Surely, the ball is in the court of the accused to satisfy the Tribunal against the presence of a motive when in possession of UPSI and if the facts and circumstances walk the talk, the Tribunal may consider the defense. However, mere averments can never loosen the noose of Presumption of Insider Trading.

The Iceberg Bifurcates: The 'Tip' & 'Beneath'

To borrow the words of the Report of the High-Level Committee chaired by Justice N.K. Sodhi, (“2013 Report”) - The 1992 Regulations were not intended to be an all-purpose ban on insider trading, and it need not prohibit legitimate transactions which have a corporate purpose, which discharge fiduciary duties, or are undertaken in the interest of the company or its public shareholders. This approach surely, in a way, even acknowledged SEBI's stance on the shift from the “on the basis of” standard to the stricter “when in possession of” framework in terms of leveling a charge of Insider Trading. While also allowing an accused to establish their defense to convert the 'Presumption' into a 'Coincidence'.

A new era was ushered in with the codification of the SEBI (Prohibition of Insider Trading) Regulations, 2015 (“2015 Regulations”). However, the fundamental challenge of proving insider trading remained unchanged. The codification now inked an inclusive list of defenses to avail i.e. the Tip and a plethora of other satisfactory defenses i.e., what lies 'Beneath' the Iceberg of Defenses. In another development, the burden of proof, as outlined in Regulation 4(2), varied depending on the classification—'connected persons' had to prove they were not in possession of UPSI, while in all other cases, the onus remains on SEBI to establish the charge of Insider Trading. To add to this, the 2018 Amendment supplanted a succinct 'Explanation' to Regulation 4(1) to polish the context of 'possession' by the aid of the words “knowledge and awareness”. As information, irrespective of form, would surely be contained in the mind of a person, therefore the use of such words was best to define 'possession'.

Tracing the discussion back to N.R. Mercantile, the defense of showcasing financial duress is an acknowledged one subject to the facts and circumstances. But what if one cloaks personal gain as a financial duress, will the defense stand the test of the watchful eye of the Regulator? Rajeev Vasant Sheth v. SEBI^[1] [“Rajeev Vasant Sheth”] may rest the confusion - Rajeev Vasant Sheth (“Appellant/Sheth”), Chairman and Managing Director of Tara Jewels Ltd. (“Company”), found himself at a financial crossroads. A short-term loan of ₹3 crores became due, leaving no room for delay. With the clock ticking, Sheth and his daughters (“Appellants”)—both company promoters—made a decisive move: they sold their unencumbered shares to clear the debt, freeing up three times the number of shares that had been pledged as collateral. Once the debt was settled, the unpledged shares were sold again, and ₹11.67 crores from the proceeds were injected back into the company as working capital, a last-ditch effort to keep the business afloat. Later on, SEBI alleged that the Appellants had sold shares while in possession of the UPSI regarding the Quarterly Financial Results (declining company profits) before the disclosure to the Stock Exchanges, thereby avoiding substantial losses.

Upon reaching the SAT, the Appellants argued that their trades were driven by financial distress rather than any calculated attempt to misuse the UPSI. Before delving into other issues, the Tribunal upheld that information relating to the Quarterly Financial Results was a UPSI which was in the possession of the Appellants. Regardless of the aforestated, the proceeds were reinvested (infused into the Company for working capital) by the Appellant and not retained for personal gain, which substantiated the absence of wrongful intent i.e., motive. An extremely notable observation of the Tribunal being: the selling of shares of the company during the UPSI period in order to avoid the company from being downgraded to a non-performing asset is an explanation sufficient to prove the innocence of trading while in possession of UPSI.

The observations of SEBI's Whole-Time Member (“WTM”) with regard to the jurisprudence of Insider Trading Laws in India was also reiterated in the matter of Dynamatic Technologies [“Dynamtic Technologies”] wherein the WTM propounded that the PIT Regulations allow insiders to prove their innocence, and the defenses provided under Regulation 4(1) are not exhaustive. The word “including” in the proviso is not exhaustive and is not confined to the circumstances listed in Clause (i) to (vi) of Regulation 4(1). Other circumstances may also serve as a defense for proving innocence. If an insider can demonstrate a legitimate financial necessity behind the trades, they may successfully rebut the presumption of Insider Trading. Therefore, not all trades executed by Insiders tantamount to 'Insider Trading'—context matters.

By now, a certain defense seems to emerge 'Beneath the Tip of the Iceberg of Defenses' i.e., a legitimate corporate purpose. Is the said defense akin to the necessity which talks about serving a greater good as was done in Rajeev Vasanth Sheth and Rakesh Agarwal? The matter of SEBI v. Abhijit Rajan [“Abhijit Rajan”] ought to be assessed to put the doubt to rest. The matter transpired when NHAI awarded two projects to GIPL (“Company”) and SIL respectively; both the companies decided to invest in each other thereby entering into a Shareholders Agreement (“SHA”), but behind the scenes, financial strains were mounting in the Company. The Company decided to terminate the shareholders' agreements with SIL (“UPSI”), a move that, at the time, seemed routine. Yet, when Abhijit Rajan (“Respondent”), then Chairman and Managing Director, sold a substantive amount of shares, SEBI (“Appellant”) took notice. Days later, GIPL publicly disclosed the termination of the SHA, leading the Appellant to allege that the Respondent had traded when in possession of the UPSI.

Aggrieved by the Appellant's decision (“SEBI Order”), the Respondent took the matter to the SAT wherein the Tribunal held that the termination of the agreements was financially insignificant, affecting a mere 0.05% of GIPL's order book and 0.7% of the turnover. More importantly, the Respondent's share sale was driven by an urgent need for funds under a Corporate Debt Restructuring (CDR) package, not by any confidential advantage. With no correlation between the trade and the alleged UPSI, the SAT overturned the SEBI Order, setting the stage for a final battle in the Supreme Court.

The Supreme Court weighed down on the aspect of motive for making a gain in the determination of the charge of Insider Trading. From the lens of normal human conduct, the Apex Court propounded that if a person enters into a transaction surely likely to result in loss, he cannot be accused of Insider Trading. That is to say: the actual gain or loss is immaterial, but the motive for making a gain is essential as a profit motive, if not actual profit should be the motivating factor for a person to indulge in Insider Trading. Naturally, an ordinary man of prudence would have waited for the market trend if he intended to indulge in Insider Trading, but the Respondent did not wait for the information to become public. In the case at hand the Respondent's decision was driven by an urgent need to honor a CDR package to eliminate the risk of bankruptcy of the Company. Finally, a litmus test was curated vide Abhijit Rajan: Whether the act of the insider in dealing with the securities was an attempt to take advantage of or encash the benefit of the information in his possession. To answer the question posed before Abhijit Rajan – Indeed, if the defense pertains to a legitimate corporate purpose for a greater good i.e., to save the Company from bankruptcy, then such a defense has the odds in favour.

Needless to say that the jurisprudence of Insider Trading laws is ever-evolving owing to the application of a judicial mind by the Courts and Tribunals. In regard with the defenses that lie 'Beneath the Tip of the Iceberg', each precedent shapes the contours of this Iceberg. One such necessary advancement was done by Shreehas P. Tambe v. SEBI [“Shreehas P. Tambe”] wherein Biocon made a public announcement of a global collaboration with Sandoz in triggering a substantial fluctuation in the stock price. SEBI identified this collaboration as UPSI and flagged the shares sold by Shreehas P. Tambe (“Appellant”), a Vice President at Biocon. Later, SEBI levelled a charge of Insider Trading and failure to disclose trades under the 2015 Regulations. The Appellant defended his trade, arguing that no UPSI existed at the time of sale, the trading window was open, and the transaction was pre-cleared by Biocon. He had signed an MoU with a developer to purchase a residential flat, and the proceeds were immediately used for a legitimate purpose, proving no motive to misuse the UPSI. However, the WTM ruled that the Biocon-Sandoz collaboration was UPSI, and the Appellant as an Insider, was privy to this UPSI, thereby guilty of Insider Trading.

When the matter reached SAT, the Tribunal made it clear that the Appellant was an Insider. Thereafter, clubbing the facts that the Appellant was granted pre-clearance from the Company to sell the shares; also, entered into an MoU with the developer for the purchase of a residential flat and the proceeds from the sale were partly infused into the said purchase – the present matter was not a case of insider trading, but one of bona fide financial planning. Additionally, even assuming the Appellant traded while in possession of UPSI, his actions were pre-cleared by the company when the trading window was open, making it a bona fide trade and not one motivated by UPSI. Finally, by pressing reliance on Rajiv Vasant Sheth, Dynamtic Technologies and Mrs. Chandrakala, the Tribunal cemented the conclusion: UPSI possession alone does not constitute insider trading—the trade must be induced by it, which was not the case here.

The Icebreaker

By now it shall be fair to say that the strength of a defense lies not in the categorization but in the ability to withstand judicial scrutiny. The Supreme Court and the SAT have consistently rejected mere lip-service in the form of generic claims of financial distress when unsupported by compelling evidence, just as they have dismissed defenses based on routine trading patterns if they failed to demonstrate consistency beyond the UPSI window. Yet, they have acknowledged genuine financial necessity when it was adequately substantiated with records, contracts, and pre-existing obligations that made the trade inevitable. Similarly, claims of legitimate corporate purpose have held ground only when the insider could prove that their trade was in furtherance of a company's long-term strategy rather than a convenient justification post-facto.

The jurisprudence surrounding insider trading in India has evolved significantly, shaping a nuanced framework for assessing an insider's bona fide intent behind trades. While the 1992 SEBI Regulations did not explicitly codify defenses, regardless of it, the Judiciary consistently adopted a holistic approach, weighing the facts, circumstances, and conduct of an accused Insider before arriving at a conclusion (DSQ Holdings Ltd.). A fundamental principle emerging from these cases is that the burden of proof shifts to the accused insider once an SCN levels an allegation of Insider Trading (Rajiv B. Gandhi). However, this burden is not insurmountable; rather, it necessitates demonstrating plausible explanations that dispel the presumption of misconduct. The defenses recognized by courts reflect the principle that not all trades executed by Insiders necessarily amount to insider trading.

One of the most pivotal defenses is that of a legitimate corporate purpose, as illustrated in Rakesh Agrawal, where trading based on UPSI was deemed permissible if it served the interests of the company and the stakeholders. Likewise, a legitimate financial necessity, as observed in Rajeev Vasant Sheth, can also serve as a valid justification, reinforcing that the defenses under Regulation 4(1) are not exhaustive but illustrative. That being said, Insiders cannot rely on these regulatory carve-outs as a checklist of compliance or as a blanket shield against liability—the Judiciary has consistently emphasized that the substance and intent behind the trades matter more than mere procedural conformity. Beyond intent, the trading pattern itself can serve as a powerful indicator of bona fide conduct. In Manoj Gaur, the SAT considered the proportionality of trades, testing whether the volume and frequency of transactions were consistent with an innocent investor's behavior rather than an opportunistic attempt to exploit UPSI. The Abhijit Rajan case further extended this reasoning by applying a motive-based test, wherein the key inquiry is whether the Insider's trades sought to take advantage of confidential information. While an unusual or disproportionate trading pattern can significantly weaken an Insider's defense, the reverse is also true—mere assertions of innocence are not enough unless substantiated with evidence (M/s. N.R. Mercantiles Pvt. Ltd.). A mere denial of possessing UPSI or an argument that trades were executed to comply with regulatory obligations, particularly during a closed trading window, does not suffice in the absence of strong corroboration.

Another critical safeguard is procedural compliance. In Shreehas P. Tambe, pre-clearance from the company, an open trading window, and the use of proceeds for legitimate purposes collectively supported the argument that the trades were not induced by UPSI. However, pre-clearance alone is not a foolproof defense—while it lends credibility to an insider's argument, it does not override the requirement to establish that the trades were not executed with knowledge of UPSI. Similarly, familial or professional relationships per se cannot be used as either a basis for liability or a defense, as clarified in Mrs. Chandrakala that ties of blood do not automatically imply access to or misuse of UPSI, but at the same time, Insiders cannot merely rely on their familial status to evade liability if circumstantial evidence suggests otherwise.

These cases collectively unveil that Insider Trading allegations are adjudicated through a case-specific, fact-intensive, and inquiry-based approach. The Judiciary, time and again, has reaffirmed that regulatory provisions should not be applied in a vacuum but must be interpreted in light of commercial realities and the broader regulatory intent. Mere procedural adherence or isolated averments are not enough—what ultimately determines an Insider's innocence is a demonstrable lack of motive to exploit UPSI, backed by a clear and convincing rationale. In addition to this, Regulation 4(2) cements this dynamic: for connected persons, the burden of proof is reversed, requiring them to establish that they were not in possession of UPSI, while in all other cases, SEBI must substantiate the charge. This shifting burden creates a see-saw where the weight of evidence can tilt the scales in either direction.

Ultimately, the iceberg remains vast beneath the surface—the depth of jurisprudence constantly reveals that insider trading law is not rigid, but an ever-adapting construct. The inquiry is never about mere compliance with black-letter regulations; it is about piercing through intent, motive, and circumstance to reach the truth. Whether insider or regulator, the only certainty is this—An insider's defense, if well-reasoned, substantiated, and contextually relevant, can successfully rebut the presumption of guilt and establish the trade's bona fide nature. Ultimately, the best defense is one that does not merely deny the allegation but dismantles it piece by piece—through timing, necessity, consistency, and credibility. A trade executed in proximity to an event that impacts stock prices will always invite scrutiny, but scrutiny is not conviction. It is in the insider's ability to reconstruct the intent behind the trade, backed by irrefutable evidence, that the distinction between circumstantial suspicion and legal culpability is drawn. In this domain, judges do not deal in absolutes—they assess holistically from an eagle eye, scrutinizing the motive against the breadth of circumstances.

In toto, Insider Trading matters are far from being an open-and-shut case wherein the dispute is never fought in absolutes, but in the gray expanse of judicial interpretation. The real question does not lie in the existence of a defense, but whether the defense is able to sail resiliently when tested against the tides of presumption.

Authors: Adv. Ravi Prakash (Associate Partner), Adv. Mohit Sirohi (Associate), Adv. Vishal Jain (Associate) & Adv. Siddhant Sekhri (Associate) At Corporate Professionals Advisers & Advocates.Views Are personal.

1. Appeal No. 536 of 2021 decided on April 19, 2022. ↑