The Supreme Court on Tuesday (August 11) held that a mere possession of Unpublished Price Sensitive Information (UPSI) coupled with trading in securities during the UPSI period is sufficient to attract presumption for insider trading under the SEBI (Prohibition of Insider Trading) Regulations, 2015.

Setting aside the Securities Appellate Tribunal's (SAT) order, a bench of Justice Sanjay Karol and Justice Augustine George Masih allowed the Securities and Exchange Board of India's (SEBI) appeal, restoring the Regulator's order against the promoters of Tara Jewels Limited (TJL), who had sold substantial portions of their shareholding while in possession of adverse unpublished financial information concerning the company to avoid financial losses.

“It is not in dispute that the respondents were in possession of UPSI. It is also not in dispute that the respondents had sold of large portions or the entirety of their shareholding while in possession of such UPSI. As such, in view of the note appended to Regulation 4 (1) reproduced supra, the purposes for which the proceeds are employed is an irrelevant consideration. The fact that the respondents had indulged in the trades at the relevant point in time is sufficient to conclude that they had conducted insider trading.”, the Court observed.

The Court highlighted the note appended to Regulation 4(1), which provides that when a person trades while possessing UPSI, the trade is presumed to have been motivated by the information in his possession. The reasons for undertaking the trade or the purpose to which the proceeds are put are not relevant to determining whether the regulation has been violated.

"Less or no profit, is of no consequence," the Court held.

Background

The case arose from trades executed by the Chairman and Managing Director of Tara Jewels Limited and two promoter-directors between October 2 and November 29, 2017.

During this period, the promoters were in possession of unpublished price-sensitive information about the company's severe financial deterioration, including a quarterly loss of Rs. 166.80 crore and a sharp decline in sales, which was disclosed to the market only on November 29, 2017.

Before the information became public, the promoters sold significant portions of their shareholding, with two liquidating their entire holdings.

SEBI concluded that the trades enabled them to avoid losses of approximately Rs. 1.38 crore and initiated insider trading proceedings.

The Securities Appellate Tribunal exonerated the promoters, accepting their explanation that the sales were motivated by the need to support financial restructuring and avert NPA classification, while also noting marginal price difference before and after disclosure.

SEBI challenged the SAT's decision before the Supreme Court.

Decision

Allowing the SEBI's appeal, the judgment authored by Justice Karol relied on the note appended to Regulation 4 (1) of 2015 SEBI Regulation which embeds “a presumption of trades so made being motivated by such knowledge and information in his possession, when such a person has UPSI. The intentions and the purposes to which the proceeds of the transactions are applied are thereby made irrelevant.”

The Court observed that the regulatory framework expressly creates a presumption that when a person trades while in possession of UPSI, the trade is presumed to have been motivated by knowledge of that information, regardless of the motive or purpose behind undertaking that transaction.

The Court said that post-2015 Regulations, unlike the erstwhile 1992 Prohibition of Insider Trading Regulation, the purposes for which the proceeds are employed is an irrelevant consideration. Therefore, once possession of UPSI and trading during the relevant period are established, the inquiry cannot shift to whether the insider had a commercially justifiable or benevolent motive for the transaction.

The Court distinguished SEBI v. Abhijit Rajan, 2022 LiveLaw (SC) 787, relied upon by the respondents, noting that the decision was rendered in the context of the 1992 Regulations, which did not impose a bar on considering the purpose behind the sale of shares while determining whether insider trading had occurred. However, noting that the note appended to Regulation 4(1) of the 2015 PIT Regulations imposes a bar on consideration of the purpose behind the sale of shares, the Court observed:

“The most obvious difference that appears plain to us, is that there is no such 'note' as there is in the latter (1992 Regulation). In other words, there was no specific bar against the consideration of the issue of where the proceeds of such insider trading transactions are used.”

“It is clearly established that, in view of the above discussion that the respondents had engaged in insider trading and, as such, had avoided approximately Rs.1.38 crores in losses.”, the Court added.

In terms of the aforesaid, the appeal was allowed. The Court restored SEBI's directions restraining the promoters from accessing the securities market for the prescribed period and directing disgorgement of the losses avoided, together with interest.

The SAT's order was modified to the extent that the monetary penalty imposed on the principal promoter was reduced from ₹25 lakh to ₹10 lakh.

Cause Title: SECURITIES AND EXCHANGE BOARD OF INDIA VERSUS RAJEEV VASANT SHETH & ORS.

Citation : 2026 LiveLaw (SC) 787

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Appearance:

For Appellant(s) : Mr. Pratap Venugopal, Sr. Adv. Mr. Navin Pahwa, Sr. Adv. Mr. Amarjit Singh Bedi, Adv. Ms. Surekha Raman, Adv. Mr. Shreyash Kumar, Adv. Mr. Siddharth Nair, Adv. Mr. Harshit Singh, Adv. Mr. Yashwant Sanjebam, Adv. M/S. K J John And Co, AOR Mr. Abhishek Singh, Adv. M/S. K Ashar & Co., AOR

For Respondent(s) : Dr. Aditya Sondhi, Sr. Adv. Mr. Ravichandra Hegde, Adv. Ms. Malvika Kapila, AOR Ms. Mitravinda Chunduru, Adv. Ms. Harbani Shinh, Adv. Ms. Pallavi Pratap, AOR Mr. Aadhar Nautiyal, AOR Ms. Meghna Rao, Adv. Mr. Dipansh Mishra, Adv. Ms. Shivangi Kohli, Adv. Ms. Ryna Karani, Adv. Ms. Prachi Raval, Adv. Mr. Rijuk Sarkar, Adv.