Insider Trading: The Definitions

The governing law is now:

• the Securities and Exchange Board of India Act, 1992, whose section 12A(d) and (e) prohibit dealing in securities while in possession of material non-public information and communicating it, and whose section 15G provides the penalty; and
• the Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 2015, made under section 30 read with section 11(2)(g) and section 12A(d) and (e) of that Act.

Note the consequence for the scope of the subject. These Regulations apply to securities listed or proposed to be listed, so insider trading in this sense is a listed company subject, unlike the rest of this book.

Who is an insider: regulation 2(1)(g)

"Insider" means any person who is: (i) a connected person; or (ii) in possession of or having access to unpublished price sensitive information.

Two limbs, and the second is the wider. Limb (i) catches people by their relationship with the company. Limb (ii) catches them by their knowledge, whatever the relationship.

The Note to the definition explains the design. Since "generally available information" is defined, anyone in possession of or having access to unpublished price sensitive information should be considered an insider regardless of the manner in which he came into possession of it; and the onus of showing that a person was in possession of or had access to such information at the time of trading is on the person levelling the charge, after which that person may demonstrate that he was not in such possession or bring himself within the defences.

So a taxi driver who overhears two directors is an insider under limb (ii), though he is connected with nobody.

Who is a connected person: regulation 2(1)(d)

The general test, in sub-clause (i), as substituted with effect from 6 December 2024:

any person who is or has been, during the six months prior to the concerned act, associated with a company, in any capacity, directly or indirectly, including by reason of frequent communication with its officers or by being in any contractual, fiduciary or employment relationship or by being a director, officer or an employee of the company or holds any position including a professional or business relationship, whether temporary or permanent, with the company, that allows such a person, directly or indirectly, access to unpublished price sensitive information or is reasonably expected to allow such access.

Three features decide most questions. The look-back is six months prior to the concerned act; the association may be in any capacity, directly or indirectly; and the test is access, actual or reasonably expected, not actual knowledge.

The deemed categories, in sub-clause (ii), are deemed to be connected persons unless the contrary is established, that is by a rebuttable presumption:

• (a) a relative of a connected person under sub-clause (i);
• (b) a holding, associate or subsidiary company;
• (c) an intermediary specified in section 12 of the Act, or an employee or director of it;
• (d) an investment company, trustee company or asset management company, or an employee or director of it;
• (e) an official of a stock exchange, clearing house or corporation;
• (f) a member of the board of trustees of a mutual fund, or of the board of the asset management company of a mutual fund, or an employee of either;
• (g) a member of the board of directors or an employee of a public financial institution as defined in section 2(72) of the Companies Act, 2013;
• (h) an official or employee of a self-regulatory organisation recognised or authorised by the Board;
• (i) a banker of the company;
• (j) a concern, firm, trust, Hindu undivided family, company or association of persons in which a director of the company, or his relative, or the banker of the company, holds more than ten per cent of the holding or interest;
• (k) a firm, or its partner or employee, in which a connected person under sub-clause (i) is also a partner; and
• (l) a person sharing household or residence with such a connected person.

Clauses (k) and (l) were inserted on 6 December 2024, and they are the modern additions: the professional's firm, and the person who lives with him.

"Relative" is defined in regulation 2(1)(hc) as the spouse; the parent of the person and of the spouse; the sibling of the person and of the spouse; the child of the person and of the spouse; and the spouses of those siblings and children.

The Note is worth quoting in an answer. A connected person is one who has a connection with the company expected to put him in possession of unpublished price sensitive information; the listed categories are presumed to be connected, but the presumption is a deeming legal fiction and is rebuttable; and the definition is intended to reach persons who seemingly do not occupy any position in the company but are in regular touch with it and its officers and are in the know of its operations.

What is unpublished price sensitive information: regulation 2(1)(n)

any information, relating to a company 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.

That is the test, and it has three elements: the information relates to the company or its securities; it is not generally available; and on becoming generally available it is likely to materially affect the price.

The list that follows is expressly "ordinarily including but not restricted to", so it illustrates and does not confine. As it stands after the amendments of 10 June 2025 it covers:

• (i) financial results; (ii) dividends; (iii) change in capital structure;
• (iv) mergers, de-mergers, acquisitions, delistings, disposals and expansion of business, and the award or termination of orders or contracts not in the normal course of business, and such other transactions;
• (v) changes in key managerial personnel, other than due to superannuation or end of term, and the resignation of a Statutory Auditor or Secretarial Auditor;
• (vi) change in ratings, other than ESG ratings; (vii) fund raising proposed to be undertaken;
• (viii) agreements, by whatever name called, which may impact the management or control of the company;
• (ix) fraud or defaults by the company, its promoter, director, key managerial personnel or subsidiary, or the arrest of a key managerial personnel, promoter or director, whether in India or abroad;
• (x) a resolution plan, restructuring or one-time settlement in relation to loans or borrowings from banks or financial institutions;
• (xi) admission of a winding up petition, or admission by the Tribunal of an application for a corporate insolvency resolution process against the company, and the approval or rejection of a resolution plan under the Insolvency and Bankruptcy Code, 2016;
• (xii) the initiation of a forensic audit for detecting misstatement in financials or misappropriation, siphoning or diversion of funds, and the receipt of the final forensic audit report;
• (xiii) actions initiated or orders passed, in India or abroad, by any regulatory, statutory or enforcement authority or judicial body against the company or its directors, key managerial personnel, promoter or subsidiary;
• (xiv) the outcome of litigation or disputes which may have an impact on the company;
• (xv) the giving of guarantees, indemnities or suretyship for a third party not in the normal course of business; and
• (xvi) the granting, withdrawal, surrender, cancellation or suspension of key licences or regulatory approvals.

Note how much of this list is company law. Items (xi) and (x) are the winding up and insolvency chapters of this book; item (v) is key managerial personnel; item (ix) is fraud under section 447.

And note item (vi)'s exclusion of ESG ratings, which is the only place the expression appears anywhere in this book's sources.

Generally available information: regulation 2(1)(e)

information that is accessible to the public on a non-discriminatory basis, and shall not include unverified event or information reported in print or electronic media.

The Note adds that information published on the website of a stock exchange would ordinarily be considered generally available.

Two points follow, and both are examinable. Accessibility must be non-discriminatory, so telling a hundred analysts is not publication. And a newspaper report of an unverified event is not generally available information, so a leak does not launder the information.

Trading: regulation 2(1)(l)

"trading" means and includes subscribing, redeeming, switching, buying, selling, dealing, or agreeing to subscribe, redeem, switch, buy, sell, deal in any securities.

The Note explains the width. Because sections 12A(e) and 15G of the Act use "dealing in securities", the term is defined widely to curb activities strictly not buying, selling or subscribing, such as pledging, when in possession of unpublished price sensitive information.

The prohibition on communication: regulation 3

Regulation 3(1). No insider shall communicate, provide, or allow access to any unpublished price sensitive information, relating to a company or securities listed or proposed to be listed, to any person including other insiders, except where such communication is in furtherance of legitimate purposes, performance of duties or discharge of legal obligations.

The Note describes it as a "need-to-know" obligation, requiring insiders to handle such information with care and to transact business on it strictly on a need-to-know basis.

Regulation 3(2): the other side of the same act. No person shall procure from, or cause the communication by, any insider of unpublished price sensitive information, except in furtherance of the same three purposes.

Note who is bound by each. Sub-regulation (1) binds an insider; sub-regulation (2) binds any person. So the outsider who extracts the information is caught although he is not an insider when he asks.

Regulation 3(2A). The board of directors of a listed company shall make a policy for determination of "legitimate purposes" as part of the Codes of Fair Disclosure and Conduct formulated under regulation 8.

So "legitimate purposes" is not left at large; each listed company must define it in advance and publish it.

A worked example

Vashi Auto Components Limited is a listed company. Its Board is to consider, on 20 August, an offer to acquire a competitor.

Is that unpublished price sensitive information? It relates to the company, it is not generally available, and an acquisition is likely to materially affect the price when announced. It is also within illustrative item (iv). So it is unpublished price sensitive information.

Who are insiders?

The directors and the company secretary are connected persons under sub-clause (i): they hold positions allowing access.

The company's banker is a deemed connected person under clause (i) of sub-clause (ii), and the presumption is rebuttable.

The law firm advising on the acquisition is caught: its partners and employees are connected under clause (k), a firm in which a connected person under sub-clause (i) is a partner, and in any event they are in possession and so insiders under limb (ii) of the definition of insider.

A former head of finance who left the company four months ago is a connected person, because the test looks back six months prior to the concerned act.

The finance director's brother-in-law, being the spouse of his sibling, is a relative within regulation 2(1)(hc) and therefore a deemed connected person, though he may rebut the presumption.

The person sharing the company secretary's residence is a deemed connected person under clause (l).

And a stranger who overhears the discussion in a restaurant is an insider under limb (ii), being in possession, although connected with nobody.

Communication. The finance director tells the company's statutory auditor, because the acquisition affects the accounts. That is in furtherance of the performance of duties and the discharge of legal obligations, and is permitted by regulation 3(1). Telling his brother-in-law is not, and is a contravention whether or not anybody trades.

Procurement. An analyst telephones the company secretary and presses him for "anything on the acquisition". Even if the secretary says nothing, the analyst is caught by regulation 3(2) if he procures or causes the communication; and it binds any person, not merely an insider.

A leak. A newspaper reports, without confirmation, that the acquisition is coming. The information does not thereby become generally available, because generally available information shall not include an unverified event or information reported in print or electronic media. It becomes generally available when the company files the announcement with the stock exchange, that being accessible to the public on a non-discriminatory basis.

Pledging. A director, in possession, pledges his shares to a bank rather than selling them. That is within "trading", which includes dealing, and the Note says the definition exists precisely to catch pledging when in possession.

The company's own duty. Its Board must have made a policy determining "legitimate purposes" as part of its Code of Fair Disclosure and Conduct under regulation 8: regulation 3(2A).

And under the Companies Act. Nothing in that Act now applies: section 195 was omitted on 9 February 2018, and an answer citing it is citing repealed law.

Distinctions that carry marks

What this does NOT mean

It does not mean section 195 of the Companies Act governs insider trading. It was omitted with effect from 9 February 2018.

It does not mean only company officers can be insiders. Anyone in possession of or having access to unpublished price sensitive information is an insider regardless of how he came by it.

It does not mean the list in regulation 2(1)(n) is exhaustive. The definition says "ordinarily including but not restricted to", and the test is the price test.

It does not mean a newspaper report makes information public. Generally available information excludes an unverified event or information reported in print or electronic media.

It does not mean the prohibition bites only on trading. Regulation 3 prohibits communication and procurement whether or not any trade follows.

It does not mean every deemed connected person is caught. The categories in sub-clause (ii) are rebuttable presumptions, and the person may establish the contrary.

Quick revision

• Where the law lives: section 195 of the Companies Act, 2013 omitted from 9 February 2018; the subject is now the SEBI Act, 1992, sections 12A(d) and (e) and 15G, and the SEBI (Prohibition of Insider Trading) Regulations, 2015, which apply to securities listed or proposed to be listed.
• 2(1)(g), insider: a connected person, or a person in possession of or having access to unpublished price sensitive information; the onus of showing possession is on the person levelling the charge.
• 2(1)(d), connected person: association in any capacity, directly or indirectly, in the six months prior to the concerned act, allowing or reasonably expected to allow access; and twelve rebuttably deemed categories, including a relative, holding, associate or subsidiary company, intermediary, investment, trustee or asset management company, stock exchange or clearing official, mutual fund trustee or employee, public financial institution director or employee, self-regulatory organisation official, the banker, a concern in which a director, his relative or the banker holds more than ten per cent, a firm in which a connected person is a partner, and a person sharing his household or residence.
• 2(1)(hc), relative: spouse; parent of the person and of the spouse; sibling of the person and of the spouse; child of the person and of the spouse; and the spouses of those siblings and children.
• 2(1)(n), unpublished price sensitive information: information about the company or its securities that is not generally available and, when it becomes so, is likely to materially affect the price; ordinarily including but not restricted to financial results, dividends, capital structure, mergers and similar transactions and abnormal orders, changes in key managerial personnel and the resignation of a statutory or secretarial auditor, rating changes other than ESG, proposed fund raising, control agreements, fraud or default or arrests, resolution plans and settlements, admission of a winding up petition or insolvency application, forensic audits, regulatory or judicial actions, outcomes of litigation, abnormal guarantees, and the granting or loss of key licences.
• 2(1)(e), generally available: accessible to the public on a non-discriminatory basis, excluding an unverified event or information reported in print or electronic media; a stock exchange website posting ordinarily is.
• 2(1)(l), trading: subscribing, redeeming, switching, buying, selling, dealing or agreeing to do so, wide enough to catch pledging.
• Regulation 3: no insider shall communicate, provide or allow access to such information, and no person shall procure it from or cause its communication by an insider, except in furtherance of legitimate purposes, performance of duties or discharge of legal obligations; and the board of a listed company must make a policy determining "legitimate purposes" in its Code of Fair Disclosure and Conduct under regulation 8.

Test yourself

1. Who is an insider? Any person who is a connected person, or who is in possession of or having access to unpublished price sensitive information, regardless of the manner in which he came into possession of it: regulation 2(1)(g).

2. What is the test for a connected person? Being or having been, during the six months prior to the concerned act, associated with the company in any capacity, directly or indirectly, in a way that allows, or is reasonably expected to allow, access to unpublished price sensitive information: regulation 2(1)(d)(i). Twelve further categories are deemed connected unless the contrary is established.

3. Define unpublished price sensitive information. Any information relating to a company or its securities, directly or indirectly, that is not generally available and which, upon becoming generally available, is likely to materially affect the price of the securities; the sixteen matters listed are ordinarily included but the list is not restrictive: regulation 2(1)(n).

4. Does a newspaper report make information generally available? No. Generally available information means information accessible to the public on a non-discriminatory basis and shall not include an unverified event or information reported in print or electronic media: regulation 2(1)(e).

5. What does regulation 3 prohibit, and what is the exception? Regulation 3(1) forbids an insider from communicating, providing or allowing access to unpublished price sensitive information to any person, including other insiders; regulation 3(2) forbids any person from procuring it from, or causing its communication by, an insider. Both are subject to the same exception: where it is in furtherance of legitimate purposes, performance of duties or discharge of legal obligations.

6. Is pledging shares "trading"? Yes. "Trading" means and includes subscribing, redeeming, switching, buying, selling, dealing, or agreeing to do so, and the Note to the definition says the wide construction is intended to catch activities strictly not buying, selling or subscribing, such as pledging, when in possession of unpublished price sensitive information: regulation 2(1)(l).