In brief. Trading on good information is not, by itself, a crime. The line between shrewd investing and insider trading is drawn by one idea: unpublished price sensitive information, or UPSI. The SEBI (Prohibition of Insider Trading) Regulations, 2015 forbid trading while in possession of UPSI and forbid passing it on. But after the Supreme Court's 2022 decision in Balram Garg, proving an insider-trading case takes far more than suspicious timing.
Every market runs on information, and someone always knows something before everyone else. The law does not try to abolish that advantage; it tries to stop a narrow, corrosive version of it, where a person who holds confidential, market-moving information about a company trades on it before the rest of the market can. Get the boundary wrong and ordinary research looks like a crime; get it right and you can see exactly why some trades are prosecuted and most are not. That boundary is the work of the PIT Regulations.
What actually makes trading "insider" trading?
The core prohibition is narrow and specific. Under the PIT Regulations, 2015, an insider must not trade in a listed company's securities while in possession of unpublished price sensitive information relating to that company, and must not communicate that information except for legitimate purposes.1 Two ingredients have to be present at once: the information must be UPSI, and the person must be an insider in possession of it. Strip either away and there is no insider trading, however large the profit. That is why almost every insider-trading defence attacks one of those two ingredients rather than the trade itself.
Who counts as an "insider"?
An insider is either a connected person, or anyone in possession of or having access to UPSI.1 "Connected person" is drawn widely: it reaches anyone associated with the company in a capacity that allows access to UPSI, directly or indirectly, including through a contractual, fiduciary or employment relationship, and it presumptively captures immediate relatives. The breadth is deliberate, because UPSI travels through people, not just job titles. But breadth is not the same as proof, and as the courts have made clear, being labelled a connected person is the start of SEBI's case, not the end of it.
What is UPSI, and when does it stop being "unpublished"?
UPSI is information that is not generally available and that, once made generally available, would be likely to materially affect the price of the securities.1 The usual examples are financial results, mergers and acquisitions, dividends, changes in capital structure, and major management changes. The "unpublished" element is temporal: the moment the information becomes generally available, through a stock-exchange disclosure or other public route, it ceases to be UPSI and trading on it is no longer prohibited. Much litigation turns on two questions of fact: was the information truly price sensitive, and had it already entered the public domain when the trade happened.
Is it enough that you possessed UPSI, or must SEBI show you traded on it?
The regulations frame the prohibition around trading "while in possession of" UPSI, which sets a deliberately demanding standard for the trader: once possession and a trade coincide, the burden effectively shifts to explaining the trade.1 To prevent that from catching genuinely innocent trades, the regulations build in defences and safe harbours, such as trades executed under a pre-scheduled trading plan, off-market transfers between promoters who both held the same information, and decisions demonstrably taken without any use of the UPSI. The architecture is strict on its face but leaves room to show that possession and trading, though they overlapped in time, were not connected in substance.
What must SEBI actually prove after Balram Garg?
More than a suspicious pattern. In Balram Garg v. SEBI, decided on 19 April 2022, the Supreme Court set aside findings of insider trading against relatives of a company's chairman, holding that circumstantial evidence such as trading pattern and timing was not enough.2 SEBI had to establish the communication and possession of UPSI through cogent material, such as records, messages or witnesses, and could not simply presume that information had passed because the parties were related.2 The Court also found that estranged, financially independent relatives who had resigned their company positions were not "connected persons" merely by family link. The decision raised SEBI's evidentiary burden in communication cases and is now the first authority any defence cites where the regulator's case rests on proximity and timing alone.
How is insider trading different from market fraud?
They police different wrongs. Insider trading is about an unfair informational advantage: trading on confidential, price-sensitive information. Market fraud under the PFUTP Regulations is about distorting the market itself, through manipulation, false trading or deception, and we cover it in What Does SEBI Use to Punish Market Fraud?. The same episode can occasionally attract both, but the elements are distinct, and conflating them is a common error. Where each sits in SEBI's enforcement machinery is mapped in How Does SEBI Actually Enforce the Law?.
What does an insider-trading violation cost, and how do you defend it?
The penalty for insider trading is imposed under Section 15G of the SEBI Act, capped after the 2014 amendments at ₹25 crore or three times the profit made, whichever is higher, and a Whole-Time Member can add disgorgement of the gains and debarment from the market.3 How the fine is sized within that ceiling is governed by Section 15J, explained in How Does SEBI Decide How Much to Fine You?, and the distinction between the fine and the clawback is set out in Does SEBI Fine You, or Take Back What You Made?. The defences track the elements: the information was not price sensitive, it was already public, there was no possession, the trade fell within a safe harbour, or, after Balram Garg, that SEBI has not proved communication by cogent evidence.
Sources & citations
- SEBI (Prohibition of Insider Trading) Regulations, 2015 (replacing the 1992 Regulations): definitions of "insider", "connected person" and "unpublished price sensitive information", and the prohibitions on communication (Regulation 3) and trading while in possession of UPSI (Regulation 4).
- Balram Garg v. SEBI, Supreme Court of India, judgment dated 19 April 2022 (Civil Appeal No. 7590 of 2021), holding that communication and possession of UPSI must be proved by cogent evidence and cannot be presumed from trading pattern, timing, or mere relationship.
- SEBI Act, 1992, s. 15G (penalty for insider trading), as amended by the Securities Laws (Amendment) Act, 2014.
About this article. Part of Legal Wires' SEBI Enforcement series, an analytical guide to India's securities enforcement record. This is general information and commentary, not legal advice; do not rely on it for any specific matter.
Prepared with AI assistance and reviewed by the Legal Wires editorial team. Regulations and judgments are cited above; where SEBI findings are described, they are the regulator's findings or allegations as recorded in its orders and, where applicable, as modified on appeal. Last reviewed: 27 May 2026.
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