Two obligations under the SEBI (Prohibition of Insider Trading) Regulations, 2015 catch promoters, key managerial personnel and other designated persons more often than any deliberate scheme of insider dealing. The first is the prohibition on trading during a closed trading window under Regulation 4 read with the Schedule B Code of Conduct. The second is the duty to disclose sizeable trades to the company under Regulation 7. Both are enforced by SEBI's Adjudicating Officer, with appeal to the Securities Appellate Tribunal (SAT), and both are treated as attracting penalty on proof of the breach rather than proof of any gain or intent. This explainer sets out the standards, the quantum SEBI has imposed, the mitigating factors that have moved SAT, and the narrow settlement and relief pathways, drawing on the orders discussed below.
The Two Distinct Wrongs
The single most important structural point running through the case law is that trading while in possession of unpublished price sensitive information (UPSI) and failing to disclose a trade are separate contraventions with separate defences. Regulation 4(1) prohibits an insider from trading while in possession of UPSI; Regulation 7 requires disclosure of trades whether or not any UPSI was involved. A person can defeat the insider trading charge and still be penalised for a late or missing disclosure, as the Biocon matter below shows. The defences differ accordingly: insider trading liability turns on possession of UPSI, on whether SEBI has proved access to it, and on the exculpatory circumstances in the proviso to Regulation 4(1), whereas the Regulation 7 duty has no such off-ramps. It is triggered by a monetary threshold, and neither good faith nor the lawfulness of the underlying trade excuses a breach.