They Sold To Save The Company. That Is Still Insider Trading.
The Securities Appellate Tribunal accepted that a legitimate corporate purpose excused the trades. The Supreme Court has held that defence is not available under the 2015 Regulations at all.
The Court held that under the note to Regulation 4(1) of the PIT Regulations, 2015, the purpose for which the proceeds are employed is an irrelevant consideration. Trading while in possession of unpublished price sensitive information is itself sufficient to conclude that insider trading was conducted, and less or no profit is of no consequence. The Whole Time Member's order was restored, and the appeal allowed.
- Regulation 4 carries a rebuttable presumption that trades made while holding the information were motivated by it.
- The note to Regulation 4(1) is decisive — what the money was for simply does not enter the analysis.
- Rakesh Agrawal was decided under the 1992 Regulations, and was not open to the Tribunal to apply here.
- Rs 1.38 crore in losses avoided during the price-sensitive window of October to November 2017.
- Court
- Supreme Court of India
- Bench
- Justice Sanjay Karol, Justice N Kotiswar Singh
- Citation
- 2026 INSC 826
- Reported
- [2026] 8 S.C.R. 525
- Case
- Civil Appeal No. 4905 of 2022
- Decided
- 11 August 2026
- Outcome
- Appeal allowed; Whole Time Member's order restored, penalty modified
What the respondents did, and why they said they did it
They sold substantial portions of their shareholding during the price-sensitive window of 2 October to 29 November 2017, while in possession of unpublished price sensitive information about the company's massive quarterly losses, avoiding a cumulative loss of approximately Rs 1.38 crore.
Their answer was that the purpose of the sale was a legitimate corporate purpose — to save the company from being downgraded to a non-performing asset.
The Whole Time Member of SEBI held them guilty of insider trading. The Securities Appellate Tribunal quashed and set that order aside on the strength of that purpose.
What insider trading is
In essence it is dealing in a company's securities having been informed by confidential information which is likely to affect the price of those securities once the information is made public.
It qualifies as a breach of fiduciary duty by employees of the company who, by virtue of being employees, are privy to such information.
The genesis of the concept is in the United States, regulated by the Securities Exchange Act of 1934. Like that Act, the SEBI Act does not define the term but proscribes it under Section 12A(d) and (e) in Chapter VA.
Why the purpose did not matter
Regulation 4 of the PIT Regulations, 2015 prohibits trading while in possession of such information. It incorporates a rebuttable presumption that trades done by a person in possession of it are motivated by the information, and provides for the scenarios in which such a person can demonstrate innocence.
It was not in dispute that the respondents were in possession of the information, nor that they sold large portions or the entirety of their shareholding while holding it. In view of the note appended to Regulation 4(1), the purposes for which the proceeds were employed is an irrelevant consideration.
The fact that they traded at the relevant time is sufficient to conclude that they conducted insider trading. Less or no profit is of no consequence. The Tribunal had appeared to recognise a legitimate corporate purpose defence as interpreted in Rakesh Agrawal — a decision rendered in the context of the 1992 Regulations — and that course was not open to it in view of the note to Regulation 4(1).
The penalty
The penalty imposed for violation of Clause 6 of the Minimum Standards for the Code of Conduct in Schedule B, read with Regulation 9(1), is justified.
On the amount under Section 15G, however, taking a cumulative view of the facts and circumstances, Rs 25 lakh on the first respondent was excessive. It was reduced to Rs 10 lakh, the minimum, the same as that imposed on the second and third respondents.
The penalty as modified is to be paid within three months if not already paid.
Who argued it
Appearances as recorded in the judgment of the Court.
Frequently asked
Is a legitimate corporate purpose a defence to insider trading?
Not under the 2015 Regulations. The Court held the purpose for which the proceeds are used is an irrelevant consideration.
Does it matter that no profit was made?
No. The Court held that less or no profit is of no consequence where the trading took place while holding the information.
Answering an insider trading charge under the 2015 Regulations
- Do not build the defence on why the money was needed; the note to Regulation 4(1) puts that outside the enquiry.
- Work within the scenarios the Regulation itself provides for demonstrating innocence, and evidence them.
- Check the vintage of any authority relied on — the 1992 Regulations and the 2015 Regulations are not interchangeable.
- Argue quantum separately from liability; the penalty here came down even though the finding stood.
Source. Supreme Court of India, 2026 INSC 826, [2026] 8 S.C.R. 525, Civil Appeal No. 4905 of 2022, decided 11 August 2026 by Justice Sanjay Karol, Justice N Kotiswar Singh. This explainer is written from the judgment text as reported.
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