The Supreme Court of India, comprising a bench of Justice Sanjay Karol and Justice N. Kotiswar Singh, has held that under the Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 2015, trading in securities while in possession of Unpublished Price Sensitive Information (UPSI) creates a legal presumption of insider trading, rendering the reasons for the trade or the utilization of sale proceeds completely irrelevant. Allowing an appeal filed by the Securities and Exchange Board of India (SEBI), the apex court set aside a judgment of the Securities Appellate Tribunal (SAT) and restored the Whole Time Member’s (WTM) order holding Rajeev Vasant Sheth and others guilty of insider trading and ordering disgorgement of avoided losses. However, the Court reduced the monetary penalty under Section 15G on Respondent No. 1 from Rs. 25 Lakhs to Rs. 10 Lakhs.
Background of the Case
The case pertains to Tara Jewels Limited (TJL), a company formerly engaged in the buying and selling of jewelry, listed on the Bombay Stock Exchange (BSE) and National Stock Exchange (NSE). Rajeev Vasant Sheth (Respondent No. 1) was the Chairman and Managing Director, while his daughters Aarti Sheth (Respondent No. 2) and Divya Sheth (Respondent No. 3) were Promoters and Vice Presidents of TJL. The company subsequently entered liquidation pursuant to an order dated July 30, 2019, passed by the National Company Law Tribunal.
During the quarter ending September 2017, TJL suffered net losses of Rs. 166.80 Crores, compared to a net loss of Rs. 6.62 Crores in the preceding quarter ending June 2017, with net sales dropping by approximately 69%. During the UPSI period—from October 2, 2017 to November 29, 2017—Rajeev Vasant Sheth sold 30,93,948 shares (representing 12.56% of the company’s total shareholding) and a further 29,75,000 shares in subsequent transactions. Aarti Sheth and Divya Sheth sold their entire shareholdings of 1,14,440 shares each. As a result, a cumulative loss of approximately Rs. 1.38 Crores was avoided.
On September 4, 2020, SEBI issued an Impounding Order-cum-Show Cause Notice. This culminated in an order dated May 24, 2021, by the WTM, holding all three respondents guilty of insider trading under the SEBI Act, 1992, and the SEBI (Prohibition of Insider Trading) Regulations, 2015. The WTM restrained Rajeev Vasant Sheth from accessing the securities market for 1 year and his daughters for 6 months, directed disgorgement of the avoided loss of Rs. 1.38 Crores with 12% interest per annum, and imposed monetary penalties under Sections 15G and 15HB of the SEBI Act.
Upon appeal, SAT quashed the WTM order on April 19, 2022. SAT observed that the explanation provided by the respondents—that TJL was at risk of being downgraded to a non-performing asset—was sufficient to prove innocence under the proviso to Regulation 4(1) of the PIT Regulations 2015, and noted that there was hardly any price difference in share prices on November 29 and November 30, 2017. SEBI then appealed to the Supreme Court under Section 15Z of the SEBI Act.
Arguments of the Parties
SEBI contended before the Supreme Court that the respondents did not fall within any of the statutory defenses provided under Regulation 4(1) of the PIT Regulations 2015, and that SAT had erred in setting aside the liability.
Conversely, the respondents submitted that their case was governed by the Supreme Court’s decision in SEBI v. Abhijit Rajan, given the factual similarity where funds were rerouted for company purposes, and argued that they gained nothing from the trades.
The Court’s Analysis
The Supreme Court examined the statutory scheme under Sections 11, 11B, 12A, 15G, 15J, 15T, and 15Z of the SEBI Act, 1992, alongside Regulations 2, 3, and 4 of the PIT Regulations 2015.
Analyzing Regulation 4(1) of the 2015 Regulations, the Court highlighted the mandatory statutory presumption contained in the Note appended to the regulation:
When a person who has traded in securities has been in possession of unpublished price sensitive information, his trades would be presumed to have been motivated by the knowledge and awareness of such information in his possession. The reasons for which he trades or the purposes to which he applies the proceeds of the transactions are not intended to be relevant for determining whether a person has violated the regulation. He traded when in possession of unpublished price sensitive information is what would need to be demonstrated at the outset to bring a charge. Once this is established, it would be open to the insider to prove his innocence by demonstrating the circumstances mentioned in the proviso, failing which he would have violated the prohibition.
Applying this principle to the present facts, the Court held:
It is not in dispute that the respondents were in possession of UPSI. It is also not in dispute that the respondents had sold of large portions or the entirety of their shareholding while in possession of such UPSI. As such, in view of the note appended to Regulation 4 (1) reproduced supra, the purposes for which the proceeds are employed is an irrelevant consideration. The fact that the respondents had indulged in the trades at the relevant point in time is sufficient to conclude that they had conducted insider trading. In that view of the matter, less or no profit, is of no consequence.
Addressing the statutory construction of Regulation 4(1), the Court analyzed the rule of ejusdem generis, citing P. Mohanraj v. Shah Bros. Ispat (P) Ltd., Vikram Singh v. Union of India, and Siddeshwari Cotton Mills (P) Ltd. v. Union of India. The Court noted that because the specific defenses follow the general word “including” in Regulation 4(1), ejusdem generis strictly does not apply, but the word “including” signifies that the list of defenses is non-exhaustive, provided any additional defense is of a similar nature.
Distinguishing the precedent in SEBI v. Abhijit Rajan, the Court pointed out that Abhijit Rajan was governed by the earlier 1992 PIT Regulations (specifically Regulation 3B):
The most obvious difference that appears plain to us, is that there is no such ‘note’ as there is in the latter. In other words, there was no specific bar against the consideration of the issue of where the proceeds of such insider trading transactions are used.
The Court further clarified that SAT’s reliance on Rakesh Agrawal v. Securities Exchange Board of India to recognize a defense of “legitimate corporate purpose” was impermissible under the 2015 framework:
…in the impugned judgment, the SAT appears to recognize a defense to insider trading, i.e., legitimate corporate purpose as was interpreted by the SAT in Rakesh Agrawal v. Securities Exchange Board of India , which was a decision rendered in the context of the 1992 PIT Regulations. That, however, was not a course open for the SAT to take in the impugned judgment in view of the note appended in Regulation 4(1).
Decision and Outcome
The Supreme Court allowed SEBI’s appeal and set aside the SAT order. The Court restored the WTM’s order regarding the finding of insider trading, disgorgement of approximately Rs. 1.38 Crores with interest, and penalty under Section 15HB for violation of Clause 6 of the Minimum Standards for Code of Conduct read with Regulation 9(1).
However, on the quantum of penalty under Section 15G, the Court held that taking a cumulative view of the facts, the Rs. 25 Lakhs penalty imposed on Respondent No. 1 was excessive, and accordingly reduced it to Rs. 10 Lakhs—the minimum statutory penalty and equal to the penalty imposed on Respondents No. 2 and 3. The modified penalty was directed to be paid within three months.
Case Title: Securities and Exchange Board of India v. Rajeev Vasant Sheth & Ors.
Case No.: Civil Appeal No. 4905 of 2022
Bench: Justice Sanjay Karol and Justice Nongmeikapam Kotiswar Singh
Date: August 11, 2026
