Insider Trading

Rajdip Bhadra Chaudhuri

Assistant Professor of Law
School of Law,
KIIT University
SEBI (Prohibition of Insider Trading) Regulation, 2015
 Insider
• Insider means a person who is:
1. a connected
2. In possession of or having access to UPSI

Note: Onus of proving lies on the person alleging

 Unpublished price sensitive information

 any information, relating to a Co. or its securities, directly or

indirectly, that is not generally available which upon
becoming generally available, is likely to materially affect the
price of the securities and shall, ordinarily including but not
restricted to, information relating to the following:
1. Financial results
2. Dividends
3. Change in capital structure
4. Reconstruction, delisting, disposals & expansion & other
transactions
5. Changes in key managerial personnel
6. material events in accordance with the listing agreement
 Connected person
 Person associated with Co. within 6 months, directly or indirectly, in any
capacity including

 frequent communication with its officers or

 contractual, fiduciary or employment relationship or

 being a director, officer or an employee of the company or

 holds any position including a professional or business relationship

 whether temporary or permanent,

 allowing directly or indirectly access to UPSI or is reasonably expected to allow

such access.
 Deemed to be connected
 Immediate relative of connected person
 Holding Co./ Associate Co. / Subsidiary Co.
 Intermediary / its employees / its Directors
 Investment Co. / Trustee Co. / AMC / employee / director
 official of SE / Clearing house or corporation
 member of board of trustees of MF / member of BODs of AMC / an
employee
 member of the BOD / an employee of PFI
 official / an employee of a SRO
 Banker of Co.
 Concern / firm / trust /HUF / Co. / AOP where a director or his
immediate relative or banker of the Co., has more than 10% of the
holding or interest
 Punishment (SEBI Act, 1992)
15G.If any insider who,—
(i) either on his own behalf or on behalf of any other person,
deals in securities of a listed body corporate on basis of UPSI; or
(ii) communicates any UPSI to any person, with / without his
request except in ordinary course of business or under any law;
or
(iii) Counsels / procures for any other person to deal in any
securities of any body corporate on the basis of unpublished
price-sensitive information,
PENALTY not less than Rs. 10 lakh & max. Rs. 25 crore / 3 times
the amount of profits made out of insider trading, whichever is
higher
 IPCL & RIL (decided on March, 2016)
• Surveillance alerts – SE – 2nd & 7th March, 2007 –
Indian Petrochemicals Corporation Ltd. (IPCL)
• Sudden rise in share price and trading volume on 8th
March, 2007
• 2nd March – announcement to SE for interim dividend
• 7th March – announcement to SE (after market hours)
– amalgamation with Reliance Industries Limited (RIL)
• Analysis by BSE & NSE (22nd Feb. – 8th March) – certain
entities bought large amount of IPCL shares
 Total traded quantity (BSE)
• 22.02.07 – 304470
• 01.03.07 – 215421
• 07.03.07 – 254617
• 08.03.07 – 3525768
• 09.03.07 – 3823511
 Deviations in BSE
• 05.3.07 – (-8.13%) – SENSEX – (-3.79%)
• 08.3.07 – (+10.74%) – SENSEX – (+3.6%)
• 09.3.07 – (+3.28%) – SENSEX – (-1.28%)

Deviations till October, 2007

30.3.07 – 271.10
30.4.07 – 310.85
31.5.07 – 353.20
30.6.07 – 343.95
31.7.07 – 373.95
31.8.07 – 387.05
30.9.07 – 458.00
31.10.07 – 478.94

Investigation by SEBI – Insider Trading by Reliance Petroinvestments Limited (RPIL)

 Relation RPIL & RIL
• RPIL – associate companies & JVs of RIL
• Reliance Ventures Ltd (RVL) holds 50% of RPIL
• Reliance Pharmaceuticals (India) Pvt. Ltd (RPPL) holds 25% of RPIL
• Reliance Nutraceuticals Pvt. Ltd. (RNPL) holds 25% of RPIL

 RVL WOS of RIL

 Reliance Strategic Investments Ltd (RSIL) holds 40% of RPPL
 RSIL holds 30% of RNPL
 RSIL holds indirectly 50% shares of RPIL
 RSIL WOS of RIL

 Thus RIL holds 100% share of RPIL as it is holding Co. of RSIL & RVL
• RPIL bought huge shares of IPCL prior to 2.3.07 &
transferred same to RIL prior to merger of IPCL
with RIL on 18.10.2007.
• RPIL & RIL – insider
• Union budget – 28.2.07 – Dividend distribution
tax enhancement – 12.5% to 15% - w.e.f. 1st Arpil
Mukesh Ambani
Non-executive Chairman of IPCL & Chairman & MD
of RIL
 Held
 Found BOD of IPCL & RIL not the same in previous 6 months – so not under same
management

 RPIL held 46% in IPCL in 2002

 More shares purchased slowly from the market on creeping basis till 2006

 Both declaration of dividend & amalgamation are PSI

 Both declaration of dividend & amalgamation were made public

 No evidence to show PSI existed before 2.3.2007 & 4.3.2007

 Held RIL, IPCL & RPIL connected (RIL exercises more than 1/3 rd of voting rights in both RPIL &
IPCL)

 No evidence to show RIL or RPIL have performed insider trading