SUPREME COURT RESTORES INSIDER TRADING FINDINGS OF THE SECURITIES AND EXCHANGE BOARD OF INDIA AGAINST TARA JEWELS PROMOTERS, HOLDS PURPOSE OF PROCEEDS IRRELEVANT UNDER THE 2015 INSIDER TRADING REGULATIONS

Securities and Exchange Board of India v. Rajeev Vasant Sheth & Ors., 2026 INSC 826
The Supreme Court has set aside a ruling of the Securities Appellate Tribunal (SAT), a specialised tribunal that hears appeals against Orders passed by the Securities and Exchange Board of India (SEBI), the regulator responsible for overseeing India’s stock markets. The SAT ruling had exonerated the Chairman and Managing Director of Tara Jewels Limited (TJL) and his two daughters of insider trading charges. Insider Trading means an allegation that they traded shares using confidential company information not yet known to the public. A Bench of Justices Sanjay Karol and Nongmeikapam Kotiswar Singh restored the findings recorded by SEBI’s Whole Time Member (WTM), a senior SEBI official empowered to pass Orders and impose penalties on SEBI’s behalf. The Bench held that the Respondents traded while in possession of Unpublished Price Sensitive Information (UPSI), meaning confidential information about the Company TJL, that once made public, would be likely to affect the price of its shares, and that the purpose to which the sale proceeds were later applied has no bearing on that determination.
Background
Tara Jewels Limited is a company listed on the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE), India’s two principal stock exchanges, and it later entered liquidation, a process in which a company’s assets are sold off to pay its debts before it ceases to exist. TJL reported a loss of Rs.166.80 crores for the quarter ending September 2017, compared to a loss of Rs.6.62 crores in the preceding quarter, with net sales falling by roughly 69%. During the UPSI period spanning 2 October to 29 November 2017, meaning the window during which this confidential, price-sensitive information existed but had not yet been disclosed to the public, Rajeev Vasant Sheth, the company’s Chairman and Managing Director, sold 30,93,948 shares, amounting to 12.56% of the total shareholding, followed by a further sale of 29,75,000 shares. His daughters, Aarti Sheth and Divya Sheth, who held the positions of Vice President and Promoter (a Promoter being a person who holds a controlling stake and plays a role in setting up or running the company), each sold their entire shareholding of 1,14,440 shares. Together, these trades allowed the sellers to avoid a cumulative loss of approximately Rs.1.38 crores that they would otherwise have suffered once the bad financial results became public.
SEBI issued an Impounding Order-cum-Show Cause Notice on 4 September 2020, a formal notice that froze the gains made from the trades and called upon the Respondents to explain why action should not be taken against them. The WTM’s Order dated 24 May 2021 held all three Respondents guilty of insider trading under Section 12A of the SEBI Act, 1992 (the primary law governing India’s securities market) and the SEBI (Prohibition of Insider Trading) Regulations, 2015 (the PIT Regulations), the detailed rules framed under that Act to specifically govern insider trading. The Order imposed periods during which the Respondents were barred from the securities market, directed disgorgement, meaning the surrender of the loss avoided or profit made through the wrongful trades, together with 12% annual interest and imposed monetary penalties under Sections 15G and 15HB of the SEBI Act.
On appeal, the SAT in Mumbai quashed this Order on 19 April 2022. It accepted the Respondents’ explanation that the sales were driven by the risk of TJL being downgraded to a non-performing asset (NPA), a classification banks apply to a loan account when repayments have stopped, which can trigger serious consequences for a company’s ability to raise further funds. The SAT treated this explanation as falling within the proviso, meaning an exception clause, to Regulation 4(1) of the PIT Regulations. It also noted that the closing prices of TJL shares on 29 and 30 November 2017 showed little difference, undercutting the theory that the sales had been timed to avoid losses.
The Legal Framework
The Court traced the statutory scheme governing insider trading. Section 12A[1] of the SEBI Act prohibits insider trading and dealing in securities while in possession of material non-public information. Section 15G prescribes penalties for insiders who deal in securities based on UPSI, and Section 15J sets out the factors relevant to deciding the amount of the penalty. Section 11B empowers SEBI to issue directions, including a direction for disgorgement of wrongful gains or losses avoided.
Under Regulation 2(g) of the PIT Regulations, 2015, an “insider” includes any person who is a “connected person”, meaning someone with a relationship to the company that could give them access to confidential information, or who is otherwise in possession of or has access to UPSI. Regulation 4(1) prohibits trading while in possession of UPSI, and it builds in a rebuttable presumption, meaning a starting assumption that can be disproved with evidence, that such trades are motivated by that information. The regulation lists specific defences an accused person may raise, including off-market inter-se transfers between insiders (private transfers of shares directly between two insiders, outside the stock exchange), transactions carried out through the block deal window mechanism (a facility for trading large blocks of shares through the stock exchange under special conditions), transactions in fulfilment of statutory obligations, and pre-determined stock option exercises. Critically, a note appended to Regulation 4(1) states that once trading while in possession of UPSI is established, the reasons for the trade or the use to which the proceeds are later put are not relevant to deciding whether a violation occurred.

The Court’s Reasoning
The Court held that the Respondents’ possession of UPSI and their sale of substantial or entire shareholdings during that period were undisputed facts. Given the note to Regulation 4(1), the purpose behind the trades, including any claim that they were made to avert an NPA classification, fell outside the scope of any permissible defence. The Court held that the mere fact of trading while in possession of UPSI was sufficient by itself to establish the violation, regardless of how much profit was made or loss avoided.
On the Appellant’s argument based on the principle of ejusdem generis, a rule of interpretation under which general words following a list of specific words are read as limited to things of the same kind as that list, the Court held that the rule could not apply here. This was because the defences in Regulation 4(1) follow the general word “including” rather than the reverse order that the rule requires. The Court found that the word “including” signals that the list of defences is not exhaustive, and permits defences of a similar nature to those already listed, but held that the Respondents’ explanation did not qualify as such a defence.
Addressing the Respondents’ reliance on the earlier decision in SEBI v. Abhijit Rajan, (2024) 11 SCC 645, the Court distinguished that precedent on two grounds. First, that case had arisen under the predecessor 1992 insider trading regulations, which contained no equivalent note barring consideration of how the proceeds were used. Second, the shares in Abhijit Rajan had been sold before an anticipated increase in price, unlike the present case, which involved a price decline. The Court observed that had a similar price fall occurred under the 1992 Regulations, the intent behind the trade might have been open to examination, but that such examination is now foreclosed under the 2015 Regulations.

Disposition
The Court restored the WTM’s Order in full as regards disgorgement and as regards the penalty for violation of the Code of Conduct standards under Regulation 9(1). It also rejected the SAT’s reliance on the “legitimate corporate purpose” defence, a defence that excuses trading based on UPSI where it was undertaken for a genuine business reason of the company, as recognised in Rakesh Agrawal v. Securities Exchange Board of India, 2003 SCC OnLine SAT 38. The Court noted that this defense had been developed under the 1992 Regulations and is unavailable under the note to Regulation 4(1) of the 2015 Regulations.
The Court modified one aspect of the WTM’s Order: the Section 15G penalty of Rs.25 lakhs imposed on Rajeev Vasant Sheth was reduced to Rs.10 lakhs, aligning it with the minimum penalty imposed on his co-Respondents. All other directions, including disgorgement with interest and the market restraint periods, stand restored. The modified penalty is payable within three months.
Shomdeepta Chanda
Associate
The Indian Lawyer & Allied Services

EDITOR’S COMMENTS

Courts have time and again taken a very serious view of insider trading. This is to ensure that there is a fairness in the process of share values. Since the market is very volatile and very sensitive to several factors, Courts discourage sales or purchase made on the basis of insider trading in order to ensure that there is a fairness in the running of the company more so if the company is heading towards IPO.
Sushila Ram Varma
Advocate & Chief Consultant
The Indian Lawyer & Allied Services

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[1] 12A. Prohibition of manipulative and deceptive devices, insider trading and substantial acquisition of securities or control.
No person shall directly or indirectly—(a)use or employ, in connection with the issue, purchase or sale of any securities listed or proposed to be listed on a recognized stock exchange, any manipulative or deceptive device or contrivance in contravention of the provisions of this Act or the rules or the regulations made thereunder;(b)employ any device, scheme or artifice to defraud in connection with issue or dealing in securities which are listed or proposed to be listed on a recognised stock exchange;(c)engage in any act, practice, course of business which operates or would operate as fraud or deceit upon any person, in connection with the issue, dealing in securities which are listed or proposed to be listed on a recognised stock exchange, in contravention of the provisions of this Act or the rules or the regulations made thereunder;(d)engage in insider trading;(e)deal in securities while in possession of material or non-public information or communicate such material or non-public information to any other person, in a manner which is in contravention of the provisions of this Act or the rules or the regulations made thereunder;(f)acquire control of any company or securities more than the percentage of equity share capital of a company whose securities are listed or proposed to be listed on a recognised stock exchange in contravention of the regulations made under this Act.

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