Introduction

In general, insider trading is the trading of securities by individuals who have unpublished price-sensitive information (UPSI) not available to the general population [1]. In the Indian context, insider trading is mainly regulated by the SEBI (Prohibition of Insider Trading) Regulations 2015 that seek to promote fairness, transparency and integrity in the securities market [2]. Fundamentally, insider trading is the misuse of confidential information to have an unfair advantage, in the form of profits or the prevention of possible losses [3].

As the main regulatory body of the stock market, the Securities and Exchange Board of India (SEBI) plays a key role in the country [4]. The Indian securities market does not allow insider trading and other market manipulation. Violations can be punishable by very serious means, such as fines, forfeiture of illegal profits, suspension of the right to trade in securities and, in some cases, criminal responsibility leading to a prison term.

It should not be neglected, though, that insider trading is different from other areas of regulation, like substantial acquisition of shares and control (subject to takeover regulations) or fraudulent and unfair trade practices, even though they all fit into a broader remit of SEBI to control market behaviour.

Historical Development of Insider Trading Laws in India

The idea behind the regulation of insider trading in India dates back to the suggestions of the Abid Hussain Committee (1989), which accepted insider trading as a civil and criminal offence and the importance of a strong regulatory framework [5].

Such suggestions ultimately resulted in the development of an insider trading regime in India, leading to the overall SEBI (Prohibition of Insider Trading) Regulations, 2015 [6], which are more global-friendly standards.

Understanding UPSI and Insiders

Meaning of Unpublished Price-Sensitive Information (UPSI)

An important aspect of insider trading is the unpublished price-sensitive information (UPSI). Under Indian law, UPSI is any information which is not generally available and which, when it becomes public, will have a material impact on the price of securities [7].

Such data usually involves:

• Financial performance
• Dividends
• Mergers and acquisitions
• Alterations in capital structure
• Major managerial decisions

The information materiality is central. Price-sensitive information is only the kind of information that will affect the decision of an investor.

Definition and Scope of Insider

The term ‘insider’ is described as referring to any individual who possesses or has access to UPSI [9]. This encompasses not only the directors and other key managerial staff, but also the professionals and other intermediaries like auditors, bankers, legal advisors, consultants, and even related individuals who have a fiduciary or contractual relationship with the company.

The definition indicates the reflection of the large scope of people who might access sensitive corporate information in modern financial markets.

Theoretical Perspectives on Insider Trading

Arguments Supporting Insider Trading

Theoretically, insider trading has long been investigated in academic research debate. Some scholars like Henry G. Manne have suggested that insider trading can, in some cases, be acceptable under certain conditions and improve market efficiency by adding more information to the stock prices faster and by rewarding managerial performance [10].

Manne was a well-known description of insider trading as the art of the corporate agents to deal in the securities of their company on the principle of undisclosed, price-relevant information.

Likewise, the agency relationship-based theory of economics, including Michael C. Jensen and William H. Meckling, opines that insider trading may bring the interests of managers and shareholders together.

There are also some empirical studies that claim that insider trading can help generate price discovery and market efficiency through diminishing information asymmetry [11].

Criticisms and Negative Impact of Insider Trading

These are, however, strongly argued out. Those who are against it highlight that the essence of a playing field in securities markets is undermined by insider trading.

It will gain at the cost of average investors, erode confidence and may put people off capital markets.

Some of its negative implications on corporate governance have also been identified by scholars, including fairness in the market and economic stability [12].

Ethical criticisms also assert that although insider trading is a contributor to efficiency, it is intrinsically unfair since it is the exploitation of the benefits of information at the cost of ignorant players [13].

Research Gap and Scope of Study

Although there has been wide scholarly interest, the literature on insider trading is still disjointed, and research tends to be jurisdiction- or theoretically orientated or narrow in scope, including executive behaviour.

Although the development of history has been explored in previous studies, regulatory frameworks, or regional practices, there is an increasing call to have a holistic and systematic review of research on insider trading.

This is especially applicable due to the high rate of literary growth of recent years, dealing with behavioural, regulatory, and economic dimensions of insider trading.

Objectives of the Study

It is on this basis that this study aims to offer a comprehensive insight into insider trading through a combination of structured analysis of academic literature and doctrinal analysis of the law.

It aims to:

• Examine patterns of research
• Distinguish effective contributions
• Examine important themes
• Point out gaps in existing scholarship

In such a way, the research helps to get a better insight into insider trading, especially within the Indian regulatory framework, but also by locating it in the wider world and theoretical arguments.

Key Features of Insider Trading

Feature	Description
Unpublished Information	Use of material information not available to the public
Unfair Advantage	Trading based on confidential information for profit or loss prevention
Informational Asymmetry	Unequal access to information between insiders and general investors
Market Integrity Concerns	Potential damage to investor confidence and transparency
Materiality Principle	Only information capable of affecting investment decisions is considered price-sensitive

The key features of insider trading can be summarised as the publication of material, unpublished information that is non-public; trading in such information or acquiring an unfair advantage; the following informational asymmetry between insiders and the general population; possible damage to investor confidence and market integrity; and the key role played by materiality in deciding the nature of the information.

1.2 Study Objective

Overall, the aim of the research is to critically comment on such notions as insider trading, regulation and the implications of insider trading within the Indian securities market. In particular, the law and the regulation which are going to be analysed in the study will be the law and the regulation which regulate insider trading in the SEBI (Prohibition of Insider Trading) Regulations, 2015, and discuss their efficiency in terms of permitting the fair and transparent market operation.

To be more specific, the study will attempt to:

1. To Discuss the Sense and Definition of Insider Trading

The paper will accomplish the definition, nature and main peculiarities of insider trading, the concept of inclusion of the role of unpublished price-sensitive information (UPSI), the concept of materiality and the classification of insiders under Indian law.

2. To Learn the Evolution of the Insider Trading Laws in India

These will entail the study of how the attention of the regulation framework has changed since the guidelines of the Abid Hussain Committee up to the present system that outlines the most significant concerns, reforms and their logicality.

• Development of insider trading regulations in India
• Role of reform committees and legal amendments
• Transformation of the regulatory framework over time

3. To Form a Picture of the Regulatory Environment and Compliance Measures

The roles of the Securities and Exchange Board of India in detecting, investigating and imposing penalties on insider trading as well as an account of its powers, procedures and enforcement are fundamentally engaged in the present paper.

Regulatory Aspect	Focus Area
Detection	Monitoring suspicious trading activities
Investigation	Inquiry and evidence collection procedures
Enforcement	Penalties and adjudication powers of SEBI

4. To Study Judicial and Administrative Senses

It involves studies of the most relevant case laws and SEBI orders to study how the laws on insider trading have been debated and practised.

5. To Explore an Economic and Ethical Issue of Insider Trading

The analysis has tried to test the rival theoretical treatments, such as arguments that have to deal with market efficiency, fairness, and protection of investors.

• Market efficiency concerns
• Fairness in securities trading
• Protection of investor interests
• Ethical dimensions of insider trading

6. To Diagnose the Issues and Inefficiencies in the Existing Structure

These issues will be specifically addressed because of the distinct areas of concern: enforcement issues, evidentiary issues, technological issues, regulatory loopholes and challenges.

7. To Propose Policy and Reforms

With the assistance of the analysis system, the study will provide recommendations on how the regulation system can be improved in order to streamline the insider trading law in India.

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1.3 Research Methodology

The type of research considered is pure secondary research. The paper’s research design is the doctrinal and analytical research design that seeks to explore the legal and regulatory and theoretical aspects of insider trading in India.

This analysis primarily depends on the secondary source of data in the form of information, and this has been backed by a peer critique and synthesis of law and scholarly volumes.

1.3.1 Nature of Research

The existing study is a qualitative study that entails examination and scrutiny of law, legal provisions and administrative practices that are relevant to insider trading.

It does not just attempt to give an explanation of the legal system as it stands but also takes a critical look at its effectiveness and what needs to be reformed.

Research Component	Description
Research Type	Qualitative Research
Research Focus	Legal provisions and administrative practices
Research Objective	Critical evaluation of effectiveness and reforms

1.3.2 Research Approach

The application of a doctrinal (black-letter law) approach to law regulating insider trading, and in particular, of the SEBI (Prohibition of Insider Trading) Act, 2015 and the Securities and Exchange Board of India Act, 1992, has been applied to the statute.

This is done through a line-by-line analysis of the text of legislation, definitions and regulation mechanisms.

Also, an analytical and comparative approach’s value has been applied in measuring the effectiveness of the Indian regulatory framework and putting it in a broader theoretical and, where possible, a global reference.

• Doctrinal (black-letter law) analysis
• Analytical legal interpretation
• Comparative regulatory evaluation
• Examination of Indian and global regulatory practices

1.3.3. Sources of Data

The research is based solely on secondary data, namely, the data gathered by the following sources:

Primary Legal Sources

• Rules, regulations and statutes that dictate insider trading, such as SEBI regulations.
• Relevant securities law.

Judicial and Quasi-Judicial Decisions

• Court decisions and orders issued by the Securities and Exchange Board of India and the Court of Appeal interpreting insider trading laws.

Committee Reports and Policy Documents

• Reports that include those of the Abid Hussain Committee and other regulatory or expert bodies.
• Committee recommendations.

Secondary Literature

• Peer-reviewed journal articles, research papers, commentaries, legal documents, and textbooks.
• Insider trading, market regulation and corporate governance analyses.

Online Databases and Official Publications

• SEBI publications, official websites, and well-known legal and financial databases.

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1.3.4. Method of Analysis

Data collected have been analysed using descriptive analysis to describe legal provisions and concepts; critical analysis to assess the strengths and weaknesses of the regulatory framework; and thematic analysis to determine recurring problems like enforcement problems, UPSI interpretation, and insider liability.

The case law analysis to comprehend the practical is also included in the study, where the appropriate implementation of insider trading laws is discussed.

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1.3.5. Scope and Limitations

The paper is limited to the Indian legal system of insider trading and, to a small extent, the invocation of international views to understand the context [14]. It does not involve empirical or field-based research and can only be limited to the existing secondary data [15].

Consequently, the results are reliant on the correctness and the extent of current writings and reports and decisions [16].

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1.4. Insider Trading in India

India, being one of the fastest-growing economies in the world, has experienced tremendous growth in its financial markets [17]. But this tremendous expansion has been noted to be accompanied by an equal increase in financial fraud, such as insider trading [18].

Insider trading is also one of the most widespread and complex issues facing the regulation of securities markets, as it has a direct negative impact on investors’ trust and the concept of fairness [19] in the market.

It is important that effective regulation be necessary in this sphere in order to have a level playing field between the two local and foreign investors [20].

It is indicative of the insider trading prevalence in the previous decades. In a comment by one of the former presidents of the Bombay Stock Exchange in 1992, he noted that insider trading was one of the dominant aspects of trading in India, and retail investors only received information when it was already capitalised on by insiders [21].

Key Issue	Impact on Securities Market
Insider Trading	Reduces investor confidence and market fairness
Unequal Access to Information	Creates an unfair advantage for insiders
Weak Market Integrity	Affects domestic and foreign investment

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1.5. Development of the Regulatory Framework

The setting up of the Securities and Exchange Board of India was a turning point in the governance of the Indian securities market [22].

SEBI was established in 1988 as an administrative body in the first place and has been accorded statutory status by the passage of the Securities and Exchange Board of India Act, 1992 [23].

SEBI has a responsibility to safeguard investor interests under Section 11 of the Act, which also encourages the promotion of work in the securities market [24], and controls its operations.

Specifically, Section 11(2)(g) identifies insider trading prevention [25] as one of the primary missions of SEBI.

Moreover, insider trading and dealing in securities are strictly forbidden in Section 12A of the SEBI Act when he/she has material or non-public information [26].

Section 15G supports enforcement, which imposes civil fines up to a maximum of 25 crore or thrice the profit earned, whichever is higher [27].

Further, in Section 24, there is criminal liability, such as imprisonment of up to ten years [28].

Major Powers of SEBI

SEBI Provision	Purpose
Section 11	Protection of investor interests and regulation of securities market
Section 11(2)(g)	Prevention of insider trading
Section 12A	Prohibits trading using unpublished price-sensitive information
Section 15G	Provides civil penalties for insider trading violations
Section 24	Provides criminal liability and imprisonment
Section 30	Empowers SEBI to frame regulations

SEBI used its powers under Section 30 to introduce and operationalise these statutory provisions.

The first of these was the SEBI (Prohibition of Insider Trading) Regulations, 1992, a comprehensive regulatory framework to deal with insider trading in India [29].

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1.6. The 2015 Regulations

With the understanding of the shortcomings of the 1992 framework, SEBI formed the Sodhi Committee [30] to carry out an extensive review.

According to its suggestions, the SEBI Prohibition of Insider Trading Regulations, 2015 [31], sought to:

• Observe Indian law with the best international practices;
• Define better important concepts like UPSI and connected persons;
• Enhance enforcement systems; and
• Support the legitimate business dealings and avoid abuse [32].

Objectives of the 2015 Regulations

Objective	Purpose
Alignment with Global Standards	Improve consistency with international insider trading laws
Clearer Definitions	Reduce ambiguity relating to UPSI and connected persons
Stronger Enforcement	Improve regulatory monitoring and penalties
Protection of Legitimate Transactions	Balance compliance with genuine business activities

Issues and Gaps in the Indian Framework

In India, the insider trading regulation is still challenged by the lack of control, in spite of the reinforced legal framework and a number of organisational and operational issues [33].

1.7.1. Enforcement Inefficiency

Insider trading has been termed an unwinnable war, given the fact that it is difficult to detect and prosecute. Many cases go undetected, and even in those cases that are investigated, the successful cases are very minimal, and prosecution is rare. There is a tendency towards reactive enforcement as opposed to being proactive [34].

• Difficulty in detecting insider trading activities
• Low prosecution and conviction rates
• Predominantly reactive enforcement approach

1.7.2. Evidentiary Challenges

To prove that insider trading occurred, one must prove that there was possession and misuse of UPSI, which is not uncommon circumstantially [35].

In contrast with other jurisdictions, like the United States, Indian regulators do not have access to tools, including telephone interception, which came in handy in such cases as the one with Raj Rajaratnam [36].

Issue	Impact on Enforcement
Difficulty proving misuse of UPSI	Weakens prosecution efforts
Lack of surveillance tools	Limits evidence collection
Reliance on circumstantial evidence	Complicates legal proceedings

1.7.3. Limited Extraterritorial Reach

The Indian law is hardly applicable outside the country; thus, it is hard to control cross-border insider trading. Although there are mechanisms like the Mutual Legal Assistance Treaties [37], they are narrow in range and power.

1.7.4. Lack of Individual Right of Action

Indian investors are not able to independently commence civil unlike in jurisdictions like the United States, insider trading proceedings. Section 26 of the SEBI Act limits prosecution to SEBI-filed complaints, curtailing investor involvement in enforcement [38].

1.7.5. Institutional Constraints

SEBI is both a legislator, an executive and a quasi-judicial body, and this raises concerns when it comes to overburdening and institutional specialisation [39].

Also, there is a shortage of manpower, and there are also resources that limit effective enforcement.

• Overlapping institutional roles
• Limited manpower availability
• Resource constraints affecting investigations

1.7.6. Regulatory Ambiguities

Some of the regulations are vague, such as imprecise words like “generally regulated information” and “non-discriminatory basis”; loose definitions of a “connected person” and “trading”; and uncertainty on trading plans and exceptions [40] to due diligence.

1.7.7. Compliance Burden

The increased compliance officer responsibility and wide disclosure demands place a large burden on the compliance officers’ loads at firms, especially big organisations that have complicated structures.

1.7.8. Lack of Whistleblower Incentives

In comparison to other jurisdictions, India does not have a strong system to motivate whistleblowers, which restricts the identification of insider trading [41].

1.7.9. Delay in Investigations

Investigations do not have any time limit on how they should be done, thus resulting in long processes and possible destruction of evidence [42].

1.7.10. Excessive Use of Financial Punishments

The common dealing with consent orders and fines, instead of criminal charges, can lessen the deterring effect of insider trading regulations [43].

1.8. Case Study and Law

The laws that regulate insider trading in India include:

• The Securities and Exchange Board of India Act, 1992;
• The Companies Act, 2013; and
• SEBI (Prohibition of Insider Trading) Regulations, 2015 [44].

An interesting example of how the insider trading law may be used is in the case of Hindustan Lever Ltd v. SEBI [45].

This is a case where Hindustan Lever Ltd. acquired shares of Brook Bond Lipton India Ltd. soon before a merger announcement. SEBI believed that HLL was an insider because of its association with the parent company and possession of UPSI concerning the merger, thus breaching the insider trading laws.

Case	Key Issue	Outcome
Hindustan Lever Ltd v. SEBI [45]	Use of UPSI before merger announcement	SEBI treated HLL as an insider under insider trading regulations

1.9. Conclusion

In conclusion, whereas India has developed a sophisticated legal framework to regulate insider trading, there are significant enforcement, clarity and institutional capacity issues.

A gradual move toward addressing these concerns is the changes in the 2015-2016 regulations introduced to establish improvements over the 1992 ones, although they have inherent gaps which need further regulation.

The measures that are required in order to be in a position to guarantee a better insider trading regime are the strengthening of surveillance mechanisms, the strengthening of international co-operation and heightened regulatory transparency.

Key Takeaways

• India has strengthened insider trading regulations over time.
• Enforcement and evidentiary challenges continue to exist.
• Cross-border insider trading remains difficult to regulate.
• Institutional and compliance burdens affect regulatory efficiency.
• Greater transparency and international cooperation are necessary.

End Notes:

1. Kesarwani, T., & Srivastava, A. (2026). INSIDER TRADING REGULATIONS IN INDIA AND THE UNITED STATES: A COMPARATIVE LEGAL ANALYSIS. LawFoyer International Journal of Doctrinal Legal Research, 4(1), 1835–1866.
   DOI: https://doi.org/10.70183/lijdlr.2026.v04.81
2. SEBI (Prohibition of Insider Trading) Regulations, 2015, Gazette of India, Extraordinary, pt. III, sec. 4.
3. Stephen M. Bainbridge, Insider Trading Law and Policy (2d ed. 2014).
4. Securities and Exchange Board of India Act, No. 15 of 1992, 11 (India).
5. Gov’t of India, Report of the Abid Hussain Committee on Capital Markets (1989).
6. SEBI (Prohibition of Insider Trading) Regulations, 2015.
7. Id. reg. 2(1)(n).
8. Id.
9. Id. reg. 2(1)(g).
10. Henry G. Manne, Insider Trading and the Stock Market 76–77 (1966).
11. Michael C. Jensen & William H. Meckling, Theory of the Firm: Managerial Behaviour, Agency Costs and Ownership Structure, 3 J. Fin. Econ. 305 (1976).
12. Victor Brudney, Insiders, Outsiders, and Informational Advantages Under the Federal Securities Laws, 93 Harv. L. Rev. 322 (1979).
13. Frank H. Easterbrook, Insider Trading as an Agency Problem, 1981 Sup. Ct. Rev. 309.
14. V.K. Bhalla, Investment Management (S. Chand 2018).
15. Id.
16. Id.
17. Reserve Bank of India, Annual Report (latest ed.).
18. SEBI, Annual Report (latest ed.).
19. Stephen M. Bainbridge, Insider Trading Law and Policy (2d ed. 2014).
20. Id.
21. BSE Historical Commentary (1992) (archival source).
22. Securities and Exchange Board of India Act, No. 15 of 1992 (India).
23. Id.
24. Id. 11.
25. Id. 11(2)(g).
26. Id. 12A.
27. Id. 15G
28. Id. 24.
29. SEBI (Prohibition of Insider Trading) Regulations, 1992.
30. SEBI, Report of the Sodhi Committee (2013).
31. SEBI (Prohibition of Insider Trading) Regulations, 2015.
32. Id.
33. Umakanth Varottil, Insider Trading in India: A Critical Analysis, Nat’l L. Sch. Rev.
34. Id.
35. Id.
36. United States v. Rajaratnam, 719 F.3d 139 (2d Cir. 2013).
37. OECD, Cross-Border Enforcement in Securities Markets.
38. Securities and Exchange Board of India Act, 1992.
39. Id.
40. SEBI (Prohibition of Insider Trading) Regulations, 2015.
41. Id.
42. SEBI Consultation Papers.
43. Id.
44. Securities and Exchange Board of India Act, 1992; Companies Act, 2013; SEBI PIT Regulations, 2015.
45. Hindustan Lever Ltd v. SEBI, (1998) SAT Order.