Summary: An allegation of communication of unpublished price sensitive information under Regulation 3 of the SEBI (Prohibition of Insider Trading) Regulations, 2015, cannot be established merely basis proximity between parties or trading pattern. Balram Garg held that cogent material such as emails, letters, etc., will be required. The recent AGEL and RHI Magnesita orders sharpen this further, showing that a call or contact between parties, without more, will not suffice. Ultimately, the outcome of any allegation of UPSI communication is fact sensitive. Together, these rulings establish a clear evidentiary requirement: that SEBI must prove that UPSI was communicated, not merely that the parties had the opportunity to communicate it.
This article examines how the law on communication of UPSI, as prescribed under the SEBI (Prohibition of Insider Trading) Regulations, 2015 (“2015 Regulations”), has evolved, and, more significantly, how the evidentiary threshold for establishing a violation has been tested and refined through a line of decisions from the Supreme Court, the Securities Appellate Tribunal (“SAT”), and SEBI itself.
Act I: Communication as a Distinct, Self-Contained Framework
The 2015 Regulations, for the first time, carried a standalone provision barring “communication” of UPSI. Regulation 3[1] prohibits insiders from disclosing UPSI and requiring them to handle it on a strict “need-to-know” basis, even among themselves. Outsiders are also barred from procuring or inducing its disclosure from an insider.
To ensure that the prohibition on “communication” did not hinder functioning of a company, Regulation 3(2A)[2], allowed a listed company to define “legitimate purposes” for which UPSI may be shared in the ordinary course of business, i.e., with lenders, merchant bankers, legal advisors and auditors, without falling foul of the above prohibition. This framework also requires companies to maintain a structured digital database with safeguards such as timestamping and audit trails to record the identities of the persons sharing and receiving UPSI. Regulation 3 is thus a self-contained framework on UPSI communication.
Act II: Determination of Communication – The Evidentiary Standard
In Balram Garg v. SEBI[3], the Apex Court set out the threshold that needed to be met to establish an allegation of “communication” under Regulation 3 of the 2015 Regulations.
The Supreme Court held that mere proximity between parties does not translate to presumption of communication of UPSI, and the trading pattern of an alleged recipient cannot, by itself, serve as circumstantial evidence that the alleged tipper communicated the UPSI. Regulation 3, the Court held, creates no deeming fiction. Communication must be proved through cogent material such as letters, emails, or witnesses, and cannot be inferred merely because the parties were related or lived near one another. In the absence of such material, SEBI cannot rest a finding on inference alone. It must produce cogent material like, letters, emails, tying the alleged communicator to the specific piece of UPSI.
Act III: Where the Facts Cut the Other Way
Barely a year later, SAT further clarified the standard in Ameen Khwaja and Ors. v. SEBI[4]. Ameen Khwaja was alleged to have obtained UPSI related to Palred Technologies Ltd. through his relationship with the company’s managing director, which he allegedly passed to his parents, wife, brother and sister-in-law, who then traded in the company’s shares. The appellants opted for the same shield used in Balram Garg, arguing that a family relationship plus a trading pattern cannot, on their own, prove communication.
SAT was not persuaded, distinguishing Balram Garg squarely on facts. In Balram Garg, SAT noted that there had been two family partitions, the families lived apart, and the trading pattern of the alleged recipient ran counter to the probability of her possessing UPSI. Here, the appellants continued to live with Ameen Khwaja, who had a demonstrable, close business relationship with the managing director. The appellants, having no prior history of trading, made abnormal, concentrated purchases of an illiquid scrip within the UPSI period. Hence, SAT held that SEBI had discharged its onus of showing that the appellants could reasonably be expected to have had access to the UPSI and dismissed the appeal.
Act IV: Two Recent Orders Sharpen What “Cogent Material” Means
If Ameen Khwaja showed that direct evidence is not indispensable where the facts justify it, two recent SEBI orders on alleged insider trading in the scrip of Adani Green Energy Limited (“AGEL”)[5] and RHI Magnesita India Ltd.,[6] show the same insistence on cogent material as seen in Balram Garg. While, insider trading may be established through circumstantial evidence, the circumstances relied upon must form a complete and credible chain.
InAGEL, SEBI’s case rested on a phone call between the alleged tipper and tippee concerning AGEL’s proposed acquisition of SB Energy Holdings Limited. However, the quasi-judicial authority held that it could not be said that there was UPSI communication through the said call as the information regarding the proposed acquisition had already appeared in media reports and become generally available at 15:25 hours on May 16, 2021, whereas the disputed call was placed at 19:51:48 hours on the same day. Importantly, SEBI observed that a single incoming call from the supposed tippee was not adequate to establish an allegation of “communication”, and the possibility of the call being for personal/ familial reasons, as claimed, could not be ruled out.
A recent SEBI order in RHI Magnesita India confronted a familiar fact pattern: calls between the noticee and a company employee during the relevant period. But the noticee explained that those calls related to a separate, already-disclosed transaction between the parties. SEBI accepted that explanation, holding that there was no evidence regarding the actual contents of the VOIP call between the noticee and the company employee, no recording, no transcript, and no contemporaneous communication establishing UPSI communication.
Conclusion
Read together, these decisions rest on a single governing principle, i.e. Regulation 3 creates no deeming fiction, and UPSI communication must be proved on evidence. While Balram Garg supplies the principle, Ameen Khwaja shows how the same principle can still work against a noticee where the facts: cohabitation, a demonstrable business relationship, and an otherwise inexplicable trading pattern, are sufficient in combination to meet that threshold, even without direct proof of a specific communication. AGEL Order illustrates a distinct route by which the principle disposes of a case, where the underlying information had already become generally available before the disputed contact occurred, there was no UPSI left to be communicated. Lastly, RHI Magnesita, in turn propounds that a cluster of circumstances that would, cumulatively, arouse suspicion is nonetheless insufficient. In the face of any alternate material such as emails, that would show that the interaction was not for communication of UPSI, but for some other reason, cogent material such as recordings or transcripts, would be essential to establish “communication”.
Thus, what ties Balram Garg, Ameen Khwaja, AGEL, and RHI Magnesita together is the requirement of demonstration of proof of communication of UPSI, and not merely proof of opportunity to communicate UPSI.
[1] Regulation 3, SEBI (Prohibition of Insider Trading) Regulations, 2015.
[2] Regulation 3(2A), SEBI (Prohibition of Insider Trading) Regulations, 2015.
[3] Balram Garg v. Securities and Exchange Board of India, (2022) 9 SCC 425.
[4] SAT order in the matter of Ameen Khwaja & Ors. v. SEBI, Appeal No. 584 of 2019, dated June 15, 2019.
[5] Order in the matter of alleged insider trading in the scrip of Adani Green Energy Limited by Pranav Adani and Others, SEBI Quasi-Judicial Authority, dated December 12, 2025.
[6] Adjudication Order in the matter of insider trading activities in the scrip of RHI Magnesita India Ltd., SEBI Adjudicating Officer, dated July 07, 2026.
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