India: A Deep Dive into SEBI and Related Legislation Amid Insider Trading and Market Manipulation Investigations

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Applicable laws and regulatory regime

Listed securities in India are governed by three main laws: the Securities and Exchange Board of India Act 1992 (the SEBI Act); the Securities Contract (Regulation) Act 1956 (SCRA); and the Depositories Act 1996 (the Depositories Act), along with the rules, regulations and other subordinate legislations issued under these laws.

Under the SEBI Act, the Securities and Exchange Board of India (SEBI) has been established as India’s principal capital markets regulator.[2] The SEBI Act deals with the powers and functions of SEBI,[3] including in terms of rule-making, enforcement and adjudication,[4] and provides for the registration and regulation of market intermediaries,[5] including stockbrokers, merchant bankers, investment advisers and portfolio managers.

The SCRA primarily regulates contracts and transactions in securities including derivatives, and specifically provides for registration and regulation of market infrastructure institutions like recognised stock exchanges and clearing corporations in India.[6] The Depositories Act deals with registration and regulation of securities depositories[7] and specifically provides for the rights and obligations of various stakeholders,[8] including the issuers of securities and depository participants who deal in such securities, as well as their legal and beneficial owners.

Under the SEBI Act, SEBI’s authority to regulate the Indian securities market is wide and encompasses administrative powers, legislative and rule-making powers, as well as quasi-judicial powers to enforce its regulations. In the exercise of its legislative authority, SEBI has issued various regulations on a variety of subjects in the domain of securities regulation. These include:

  • the SEBI (Issue of Capital and Disclosure Requirements) Regulations 2018 (the ICDR Regulations), which deal with the process of issuance and initial listing of equity shares and convertible securities, and also with further offerings of such equity shares and convertible securities by Indian listed companies;
  • the SEBI (Listing Obligations and Disclosure Requirements) Regulations 2015 (the Listing Regulations), which deal with the obligations of listed entities including continuing disclosure obligations, composition of board of directors of listed companies and corporate governance norms;
  • the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations 2011 (the Takeover Regulations), which deal with regulation of substantial acquisition of shares, voting rights or control of listed companies, and provide for certain procedural protections to minority shareholders following such acquisitions or takeovers including by way of mandatory open offers;
  • the SEBI (Prohibition of Fraud and Unfair Trade Practices) Regulations 2003 (the PFUTP Regulations), which prohibit fraudulent and unfair trade practices including market manipulation, price rigging, accounting frauds and circulation of false information with a view to influence share prices;
  • the SEBI (Prohibition of Insider Trading) Regulations 2015 (the PIT Regulations) restrict and regulate trading by corporate insiders and connected persons on the basis of ‘unpublished price sensitive information’ (UPSI), as well as provide certain safeguards for handling, preservation and communication of such information;
  • regulations governing structuring of various pool investment vehicles such as mutual funds,[9] alternative investment funds,[10] real estate investment trusts[11] and infrastructure investment trusts;[12] and
  • specific regulations governing the registration and regulation of various market intermediaries such as stockbrokers,[13] merchant bankers[14] and portfolio managers,[15] as well as those governing specific categories of investors such as Foreign Portfolio Investors[16] and Foreign Venture Capital Investors.[17]

Breach of the SEBI Act, SCRA, Depositories Act or SEBI’s regulations framed thereunder could be accompanied by violations of other related statutes or regulations, including:

  • the Companies Act 2013 (the Companies Act), dealing with the activities of companies in India, including the issuance and transfer of securities;
  • the Reserve Bank of India Act 1934 (the RBI Act), under which the Reserve Bank of India (RBI) is empowered to regulate banking companies, non-banking finance companies, money market instruments and certain capital market instruments; and
  • the Foreign Exchange Management Act 1999 (FEMA), according to which transactions in securities involving entities not resident in India are regulated.

Market regulators and their respective jurisdictions

The Securities and Exchange Board of India

Listed securities in India are primarily regulated by SEBI. SEBI was established in 1988 as a department of the Ministry of Finance, Government of India, and was subsequently established as a statutory body in 1992, with the enactment of the SEBI Act. As per the SEBI Act,[18] SEBI’s objective is to protect the interests of investors in securities, and to promote the development and regulation of the Indian securities market.

The term ‘securities’ is defined under the SCRA[19] and includes shares, scrips, stocks, bonds, debentures, debentures stock (and such other marketable securities), derivatives, government securities (such as treasury bills), units of collective investment schemes, mutual funds and pooled investment vehicles, as well as rights or interest in such securities. The above definition is indicative and by no means exhaustive.

For the regulation of the securities market, SEBI enjoys wide-ranging powers of enforcement including the power to enquire into, and if necessary, issue directions[20] or levy penalties against any person or entity associated with the Indian securities market, including for breach of its regulations.[21] The orders passed by SEBI in this regard may also envision equitable relief in the interests of the securities market at large.[22] Failure to comply with the orders and directions of SEBI may also lead to recovery proceedings by SEBI.[23] In addition to such regulatory powers, SEBI may also initiate criminal proceedings if the consequences of a breach of its regulations are also actionable under Indian criminal law.[24]

Pertinently, the SEBI Act excludes securities law matters from the jurisdiction of civil courts in India and vests SEBI with exclusive jurisdiction.[25] Orders passed by SEBI are appealable before the Securities Appellate Tribunal (SAT)[26] and the orders passed by SAT are appealable before the Supreme Court of India on questions of law.[27] A detailed description of SEBI’s enforcement powers is provided below in the section titled ‘Remedies and sanctions that are available to government authorities’.

Other regulators

While SEBI is primarily concerned with the regulation of listed and proposed-to-be-listed securities in India,[28] certain aspects of regulation pertaining to both listed and unlisted securities fall within the jurisdiction of multiple other regulators. This includes government ministries such as the Ministry of Finance (MOF) and the Ministry of Corporate Affairs (MCA) as well as India’s central bank (RBI).

The MCA administers and regulates compliance under the Companies Act, including with regard to the issuance and transfer of both listed and unlisted securities.[29] While the MOF administers the implementation of government policy in the Indian securities market, the RBI is vitally tasked with the regulation of money market instruments and also regulates transactions in foreign exchange with persons or entities not resident in India, including those in securities.[30] These regulators routinely issue regulations and subordinate legislation governing both listed and unlisted securities, as well as issuing regulatory guidance to market participants by way of circulars, notifications and guidelines.

Additionally, stock exchanges registered with SEBI under the SEBI Act monitor compliance of listed companies as well as intermediaries such as stockbrokers and other depository participants, by issuing rules, regulations and by-laws regulating trading in securities as well as the rights and liabilities of various parties to securities contracts.[31] A significant majority of trading in Indian equity and debt instruments takes place on two bourses: the National Stock Exchange and the Bombay Stock Exchange, and trading in commodities mainly takes place on the Multi Commodity Exchange of India Limited.

Other regulators whose regulatory purview could overlap with SEBI’s, in the event of violation of its laws and regulations, include the Enforcement Directorate (which prosecutes offences of money laundering), the Serious Fraud Investigations Office constituted under the Companies Act (which specifically investigates complex issue of corporate fraud),[32] as well as the police departments of each state, which investigate and try crimes under Indian criminal law, including economic offences such as fraud and stock manipulation.

Frequent subjects of securities enforcement

As per recent SEBI data,[33] the most common subject matter areas for investigation by SEBI in FY 2022–2023 were (in decreasing order of frequency):

  • insider trading;
  • market manipulation and price rigging; and
  • miscellaneous violations of other securities laws and regulations, including those relating to takeovers, disclosure violations under the Listing Regulations and delisting of securities.

In FY 2022–2023, of the 144 investigations initiated by SEBI, 85 (59 per cent) involved cases of insider trading, while 54 (37.5 per cent) involved cases of market manipulation and price rigging, while only 5 (3.5 per cent) involved other miscellaneous securities law violations. Similarly, of the 152 investigations completed by SEBI in FY 2022–2023, 75 (49.3 per cent) involved cases of insider trading, 67 (44.1 per cent) involved market manipulation and price rigging, while only 10 (6.6 per cent) involved miscellaneous securities law violations.

Trends in regulatory enforcement by SEBI clearly indicate that more than 90 per cent of the investigations initiated or completed by SEBI in FY 2022–2023 pertain to issues of market abuse, including matters of insider trading and market manipulation.

Prohibition on insider trading in India

The offence of insider trading in India is governed by the provisions of the SEBI PIT Regulations, which prohibit any act of trading or dealing in securities while in possession of UPSI relating to the listed company or its securities. The term ‘UPSI’ is defined very widely, and the fundamental principle is whether any particular information pertaining to a listed entity or its securities (that is not generally available to the public on a non-discriminatory basis), if made available in the public domain, will have the ability to impact trading prices of securities of the listed entity.

An ‘insider’ under the PIT Regulations includes a ‘connected person’ identified based on their association with the company,[34] as well as all other persons or entities who may have access to UPSI, regardless of their relationship to the company. The PIT Regulations prohibit insiders from:

  • communicating, providing or allowing access to UPSI to any person (including other insiders), except in furtherance of legitimate purposes,[35] performance of duties or discharge of legal obligations (in addition to a few other exceptions available in the case of the listed entity) under Regulation 3; and
  • trading while in possession of UPSI under Regulation 4(1).

Companies are required to frame policies and codes for determination of purposes for which such information may be disclosed,[36] for governing the conduct and trading activities of the designated persons of the listed entity[37] and for protection of whistleblowers.[38]

Under the PIT Regulations, SEBI’s investigations are not limited to the offence of insider trading, but also deal with unauthorised communication of UPSI and disclosure violations under the PIT Regulations relating to acquisition and disposal of securities above certain thresholds.

An amendment to the PIT Regulations in November 2022 has also brought the trading of mutual fund units on the basis of UPSI within the ambit of insider trading regulation in India.[39] However, the amendment has not been notified yet and is therefore not currently in force.

Prohibition of fraud and unfair trade practices in India

Section 12A(c) of the SEBI Act, read with the PFUTP Regulations, prohibits market participants from, inter alia, engaging in any act or practice, while dealing in listed securities, which would operate as fraud or deceit upon any other person and which is prohibited under the SEBI Act or any rules or regulations framed thereunder. The PFUTP Regulations have been issued by SEBI with the objective of prohibiting fraudulent, manipulative and unfair trade practices in the securities market. To establish fraud, it must be proven that the alleged act, omission or concealment involved inducement of other persons to trade in securities. Further, determination of fraud or market manipulation depends on the specific facts and circumstance of each matter. The onus of establishing or proving the existence of fraud or price manipulation is on SEBI. In the case of civil securities fraud under the PFUTP Regulations, the burden of proof is not as stringent as in criminal fraud (where fraud has to be proven beyond reasonable doubt).

All activities concerning the Indian securities market are subject to the provisions of the SEBI PFUTP Regulations, which are aimed at prevention and prohibition of market abuse. The PFUTP Regulations are worded broadly and seek to prohibit and sanction any deceptive, fraudulent or manipulative conduct in the Indian securities market.

The PFUTP Regulations, inter alia, prohibit the following:

  • any fraudulent dealing in securities;
  • use of any manipulative, fraudulent or deceptive device in contravention of the SEBI Act or regulations framed thereunder; and
  • engaging in any act amounting to fraud upon any person connected with the Indian securities market.

The PFUTP Regulations are principle-based and provide SEBI with wide-ranging powers of enforcement in this regard. In FY 2022–2023, SEBI’s investigations under the PFUTP Regulations primarily focused on, among others:

  • price rigging and volume manipulation by means of circular trading to artificially inflate the price of securities;
  • dissemination of false information to influence share prices;
  • misstatement or manipulation of accounts or financial statements; and
  • placing orders for securities while in possession of confidential information about a large impending transaction in those securities (known in common parlance as front-running).[40]

Investigation and enforcement regarding miscellaneous securities laws violation

SEBI also routinely investigates and adjudicates upon the following kinds of violations of securities regulations in India, including:

  • disclosure violations by listed entities under the Listing Regulations pertaining to the disclosure or otherwise of material events[41] impacting the company;
  • violations of the Takeover Regulations relating to mandatory open offers to minority shareholders following a substantial acquisition of shares or control,[42] as well as disclosure violations arising under the Takeover Regulations relating to such acquisitions;[43]
  • violations of the PFUTP Regulations in regard to unusual and circular trading in illiquid stock options on Indian stock exchanges;[44] and
  • violations of the internal code of conduct formulated by listed companies under the PIT Regulations, including reporting and pre-clearance requirements provided therein.[45]

In summary, a significant majority of SEBI’s investigations have taken place under principle-based regulations rather than rule-based ones. Market participants must bear in mind that all trading activity in the Indian securities market must therefore be genuine and carried out in utmost good faith.

Legal issues arising in the context of enforcement investigations


Investigations initiated by SEBI are in the nature of quasi-judicial proceedings under Indian law,[46] and must comply with due process requirements applicable to such proceedings, including the right to a fair hearing and the issuance of a reasoned order. Under the SEBI Act, SEBI may commence an investigation into a matter if it believes that persons or entities associated with the securities market have violated various laws or regulations, or if it believes that transactions in securities are being carried out in a manner that is detrimental to investors or the market.[47] Therefore, SEBI may initiate investigations on both legal and equitable grounds.

The investigative authority of SEBI under the SEBI Act includes the authority to:

  • call for information/documentation from any person or entity associated with the Indian securities market;
  • summon and enforce attendance and testimony of such persons; and
  • inspect the books of account, registers and other corporate documents, among others.[48]

In regard to its quasi-judicial powers, SEBI has been vested with the powers akin to a civil court under Indian laws (the Code of Civil Procedure 1908),[49] and is required to follow applicable civil procedure in discharge of these functions. Below are some important legal issues that arise in the context of investigations carried out by SEBI.

Attorney–client privilege

As per the Indian Evidence Act 1872 (the Evidence Act),[50] communications between clients and their attorneys (advocates enrolled under the Indian Advocates Act 1961) are privileged and confidential and cannot be used as evidence in a court of law. Such privilege extends to legal advice and communications between advocates and their clients relating to, or in anticipation of, legal proceedings or litigation.

However, such privilege would not protect any communication made in furtherance of an illegal purpose, or information or fact observed by an advocate indicating that a crime or fraud has been committed.[51] Such attorney–client privilege can also be waived by a client, including by volunteering testimony as a witness in regard to such privileged information or documentation.[52]

Non-cooperation with the investigation process

Under the SEBI Act, if a person fails to cooperate with the investigation process initiated by SEBI,[53] they may be imprisoned for a period of up to one year, or subject to a fine imposed by SEBI that may extend to 10 million rupees.[54] They may also be asked to pay an additional fine 0.5 million rupees[55] for every day after the first day during which the failure continues.[56]

Cross-border investigations

While the SEBI Act is stated to apply to the territory of India,[57] it provides that SEBI shall be authorised to investigate ‘any intermediary or person associated with the securities market’ who it suspects of having violated provisions of the SEBI Act or any rules or regulations framed thereunder.[58] Given the increasingly globalised nature of the Indian securities market, such persons or intermediaries subject to investigation are often resident or situated outside India.

In this regard, SEBI’s Office of International Affairs is tasked with the duty of liaising with competent authorities in foreign jurisdictions, including securities regulators and central banks, as well as civil and criminal courts for the purpose of obtaining evidence and documentation from such persons or entities or compelling them to provide testimony.

Further, SEBI is a member of the International Organization of Securities Commissions (IOSCO), an international council of securities regulators seeking to strengthen cross-border cooperation and information sharing to aid better enforcement. In this regard, SEBI is a party to the IOSCO’s 2002 Multilateral Memorandum of Understanding (MMOU),[59] as well its 2016 Enhanced Multilateral Memorandum of Understanding (EMMOU),[60] wherein various signatory regulators agreed to cooperate with each other on various matters including information and document sharing, and assistance with the recording of testimony.

SEBI has also entered into bilateral arrangements and agreements with various other securities regulators across the world, to facilitate mutual assistance and information and documentation sharing. As at 5 September 2023, SEBI has entered into more than 20 bilateral MOUs with various securities regulators, including the Securities and Exchange Commission of the United States, the Monetary Authority of Singapore and the Financial Conduct Authority of the United Kingdom.[61]

Informational privacy and data-related issues

Under the SEBI Act, SEBI has been authorised to require any person or entity to furnish information, documentation or records it may consider germane to the investigation. In this regard, SEBI often requires such persons or entities to provide them with data in their mobile phones and other digital devices suspected to contain relevant information or documentation. Upon procuring such devices, SEBI collates the text messages, emails and communications found on such devices and relies on them as part of the record as the case progresses.

This practice has given rise to some controversy in the context of market abuse investigations. Investigating a matter in which the financial results of several listed entities were leaked on social media, SEBI tried to reconstruct the chain of information flow by requisitioning several mobile devices in a bid to trace the source of the leak. However, it was unable to do so due to end-to-end encryption policies adopted by several web-based messaging apps.[62]

Citing these difficulties in the investigation, SEBI levied a fine on several entities who were in possession of the information prior to its publication, under the PIT Regulations for the unauthorised communication of UPSI.[63] SEBI’s order was overturned by the SAT on grounds that SEBI could not prove that the individuals possessed knowledge that such information was indeed true (and therefore UPSI), and that none of them had in fact traded on the basis of such information.[64]

In a bid to overcome such investigation hurdles posed by technology, SEBI had also mooted the introduction of a new set of regulations known as the SEBI (Prohibition of Unexplained Suspicious Trading Activities in the Securities Market Regulations) 2023 (the USTA Regulations). SEBI had floated the proposal to enact the USTA Regulations in a consultation paper issued in May 2023.[65] The USTA Regulations seek to penalise persons or entities who engage in ‘suspicious trading activities’,[66] which are said to occur when an unusual trading pattern[67] is observed, coinciding with the existence of material non-public information or UPSI about the securities. By means of such a rebuttable presumption, SEBI seeks to obviate the need to prove specific knowledge or intent on the part of the accused.

While the USTA Regulations have not been enacted by SEBI to date, it is possible that they may become law at a future date. SEBI has also, in a bid to expedite investigations, sought authority from the Indian Central Government to wiretap phones and other communication devices.[68] While this authority has not yet been given to SEBI, it is possible that it may be granted in the future.

Protection of whistleblowers

Under the Companies Act,[69] every listed company is required to formulate a vigil mechanism by which directors and employees may report concerns regarding financial impropriety at the company. The Listing Regulations[70] reiterate the requirement for a whistleblower policy and provide that adequate safeguards must be provided to avoid victimisation of the whistleblower, and that they must have direct access to the chair of the audit committee of the company regarding such concerns. Further, the PIT Regulations also provide for an informant mechanism[71] to encourage whistleblowers to report concerns relating to insider trading, and provide for a monetary reward to the informant in this regard.[72]

Multiplicity of proceedings

Indian law does not typically prohibit multiple regulators from pursuing concurrent investigations relating to the same set of facts. Therefore, it is entirely possible that an alleged securities law violation under the PFUTP Regulations may also involve allegations of money laundering (to be investigated by the Indian Enforcement Directorate),[73] and allegations of criminal fraud (to be investigated by the police departments under Indian criminal law).[74]

Similarly, as mentioned in ‘Applicable laws and regulatory regime’, above, the provisions of the Companies Act also apply to listed securities, resulting in the initiation of parallel proceedings by the MCA and SEBI in relation to violations under the Companies Act and the SEBI Act and regulations framed thereunder. Such parallel investigations are common in India and proceed on a concurrent basis.

Remedies and sanctions that are available to government authorities

Under the SEBI Act, SEBI is empowered to pursue enforcement actions of both civil and criminal nature.

Civil and regulatory enforcement

SEBI may pursue the following courses of enforcement action involving civil remedies:

  • issuance of directions against persons or entities related to the Indian securities market;[75]
  • imposition of penalties against such persons or entities as per the SEBI Act and various SEBI regulations;[76] and
  • regulatory action against registered intermediaries pursuant to an inquiry, by way of suspension or cancellation of their licences.[77]

Section 11B of the SEBI Act authorises SEBI to issue a variety of directions to persons or entities associated with the Indian securities market. As per the SEBI Act, these directions may be issued either in the larger interest of investors or the orderly development of the market, or to prevent the affairs of any intermediary or person associated with the market from being mismanaged and to secure the management of such person or intermediary.

The precise scope of such directions under the SEBI Act are not restricted, and SEBI is fully entitled to fashion or ‘mould’ the relief as it deems appropriate in each case. Directions under Section 11B have been issued with a wide range of reliefs envisaged, ranging from warnings and monetary restitution to cancellation of a registered intermediary’s licence, debarment from accessing the Indian securities market and the disgorgement of illegally made gains.[78] SEBI has also been authorised to take specific enforcement measures under Section 11 of the SEBI Act, under which SEBI has been authorised to, inter alia:

  • suspend the trading of any security on a recognised stock exchange;[79]
  • restrain any persons or entities from accessing the Indian securities market;[80]
  • suspend an office bearer of a stock-exchange or self-regulatory organisation from holding such office;[81] and
  • attach (for a maximum of 90 days) bank accounts or other properties of any person or intermediary involved in violation of securities laws.[82]

SEBI has the power to issue such directions by means of interim as well as final orders under the SEBI Act. While the principles of natural justice, including the right to file a written response and a personal hearing apply to all proceedings before SEBI, SEBI may pass interim orders either pending an investigation, or even ex parte if SEBI feels that circumstances warrant such urgent relief.[83] In such an event, a post-decisional hearing is provided to the affected party. Final orders are typically passed after investigations or enquiries are completed and the accused parties are given an opportunity to be heard.

Adjudication proceedings

SEBI may also levy monetary penalties for violation of its securities law regime under Chapter IV(A) of the SEBI Act. Where SEBI is of the opinion that a matter requires adjudication in respect of an offence under SEBI’s regulations, it appoints an officer known as an adjudication officer (AO) to enquire into the offence. The adjudication process is governed by the provisions of the SEBI (Procedure for holding inquiry and imposing penalty by the Adjudicating Officer) Rules 1995 (the Adjudication Rules).

The AO appointed under the Adjudication Rules can issue summons for the purposes of such an inquiry, order production of information or documents and examine witnesses on oath.[84] Subsequent to the completion of the inquiry or investigation by the AO, a notice is issued to the accused persons or entities, calling upon them to show cause why penalties are not to be levied against them for the violations detailed in such notice.[85]

Adjudication proceedings that follow the issuance of the notice are quasi-judicial in nature and are subject to applicable due process requirements including the noticee’s right to a personal hearing and to be represented by a legal counsel.[86] An adjudication order is passed upon completion of hearing the parties and penalties, if any, are levied accordingly.[87]

The penalties contemplated under adjudication proceedings include penalties for defaults or contraventions under various regulations issued by SEBI, including those on insider trading, takeovers, fraud and unfair trade practices. While the statutory range of these penalties is typically between 100,000 rupees and 250 million rupees,[88] the amount of penalty by SEBI is entirely discretionary and would depend on facts of the case and specific factors such as the loss caused to investors, the repetitive nature of the default and a quantification of any unfair advantage received by the accused person or entity.[89]

Initiation of criminal prosecution

In addition to the powers mentioned above, SEBI can also initiate criminal prosecution against accused persons or entities by filing a complaint before a court of competent criminal jurisdiction.[90] In such cases, the special courts will take cognisance of the complaint filed by SEBI and deal with the matter in the nature of a criminal trial. As SEBI’s powers to take civil action have teeth, SEBI seldom initiates criminal action in the first instance, and such action is reserved for the gravest offences, particularly where the interests of a large number of investors have been jeopardised.

Regulatory action against market intermediaries

SEBI is also empowered to take regulatory action against registered market intermediaries such as stockbrokers, share transfer agents, merchant bankers and portfolio managers. If it observes non-compliance on the part of a registered intermediary with applicable laws and regulations, SEBI can appoint an authority known as the designated authority,[91] who then investigates the matter and issues a show-cause notice to the concerned intermediary, seeking a response to the allegations raised. Based on the responses received from the intermediary, the designated authority may recommend remedies to be adopted by SEBI in each case. These could include suspension or cancellation of the intermediary’s licence, or prohibitions or restrictions on the intermediary’s conduct of its business under law.

Recovery proceedings

If a person or entity that is penalised or ordered to pay a sum of money to SEBI fails to do so, a recovery officer, appointed by SEBI, is empowered to draw up a statement known as a recovery certificate,[92] recording the outstanding dues from the person or entity. Subsequent to the issuance of the recovery certificate, the recovery officer may proceed to recover the amounts due by means of various methods including attachment of property or bank accounts, arrest of the person until dues are cleared and the appointment of a receiver for the management of the person’s properties.

Settlement proceedings including summary settlements

Under the SEBI (Settlement Proceedings) Regulations 2018 (the Settlement Regulations), SEBI allows for persons or entities against whom civil proceedings have been initiated to settle the proceedings with or without an admission or denial of liability in that regard.[93] Such a settlement cannot be sought if an inquiry, investigation, audit or inspection is pending against the person or entity.

Upon receipt of a settlement application under the Settlement Regulations, SEBI may consider the circumstances surrounding the allegation, and allow for settlement subject to compliance with the terms of settlement. These terms could be in the nature of monetary terms (as determined under the Settlement Regulations)[94] and non-monetary terms, or just the former. The non-monetary terms can be in the nature of suspension of business for a specified period of time or, in case of an individual, suspension from employment or directorship for a specified period of time, identification of persons responsible for alleged violation and recovering the monetary settlement amount from them. The Settlement Regulations also prescribe certain aggravating and mitigating factors to be considered while deciding the terms of settlement.[95]

Further, in certain cases pertaining to technical or inadvertent violations such as disclosures not being made on time or in the prescribed format, SEBI allows for a summary settlement procedure.[96] As per the summary settlement procedure, SEBI may issue a notice of summary settlement prior to initiation of proceedings, and the recipient of such a notice will be entitled to seek settlement before any proceedings are initiated against them.

Power to issue administrative warnings

SEBI also has the power under the SEBI Act to issue administrative warnings to parties in such cases where they may not warrant the imposition of penalties or sanctions.[97] However, this power would not fall under SEBI’s enforcement powers, which are quasi-judicial in nature, but are more in the nature of administrative actions in the interests of the securities market.


[1] Manjari Tyagi is a partner, Deepika Goyal is a principal associate and Vishnu Sumanth is an associate at Shardul Amarchand Mangaldas & Co.

[2] Section 3, the SEBI Act.

[3] Chapter IV, the SEBI Act.

[4] Sections 29–30, the SEBI Act.

[5] Chapter V, the SEBI Act.

[6] Sections 3 and 8A, the SCRA.

[7] Section 3, the Depositories Act.

[8] Chapter III, the Depositories Act.

[9] SEBI (Mutual Funds) Regulations 1996.

[10] SEBI (Alternative Investment Funds) Regulations 2012.

[11] SEBI (Real Estate Investment Trusts) Regulations 2014.

[12] SEBI (Infrastructure Investment Trusts) Regulations 2014.

[13] SEBI (Stockbrokers) Regulations 1992.

[14] SEBI (Merchant Bankers) Regulations 1993.

[15] SEBI (Portfolio Managers) Regulations 2020.

[16] SEBI (Foreign Portfolio Investors) Regulations 2014.

[17] SEBI (Foreign Venture Capital Investors) Regulations 2000.

[18] Section 11, the SEBI Act.

[19] Section 2(h) of the SCRA defines the term ‘securities’ as: ‘(i) shares, scrips, bonds, debentures, debenture stock or other marketable securities of a like nature in or of any incorporated company or a pooled investment vehicle or other body corporate; (ia) derivative; (ib) units or any other instrument issued by any collective investment scheme to the investors in such schemes; (ic) security receipt as defined in clause (zg) of section 2 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002; (id) units or any other such instrument issued to the investors under any mutual fund scheme; [Explanation – For the removal of doubts, it is hereby declared that "securities" shall not include any unit linked insurance policy or scrips or any such instrument or unit by whatever name called, which provides a combined benefit risk on the life of the persons and investment by such persons and issued by an insurer referred to in clause (9) of section 2 of the Insurance Act, 1938 (4 of 1938);] (ida) units or any other instruments issued by any pooled investment vehicle; (ie) any certificate or instrument (by whatever name called), issued to an investor by any issuer being a "special purpose distinct entity which possesses any debt or receivable, including mortgage debt, assigned to such entity, and acknowledging beneficial interest of such investor in such debt or receivable, including mortgage debt, as the case may be; (ii) Government securities; (iii) rights or interest in securities".’

[20] Section 11B, the SEBI Act.

[21] Section 11B and Chapter VIA, the SEBI Act.

[22] id.

[23] Section 28A, the SEBI Act.

[24] Section 24, the SEBI Act.

[25] Section 15Y, the SEBI Act.

[26] Section 15T, the SEBI Act.

[27] Section 15Z, the SEBI Act.

[28] Section 24, the Companies Act.

[29] Section 469, the Companies Act.

[30] Reserve Bank of India Act 1934 (the RBI Act).

[31] The rules and regulations issued by the National Stock Exchange, India’s largest stock exchange are available at (last accessed on 5 September 2023).

[32] Section 211, the Companies Act.

[33] Annual Report of SEBI for Financial Year 2022–23, available at at pp. 159-160 (last accessed on 5 September 2023).

[34] Under Regulation 2(d) of the PIT Regulations, connected persons include any persons directly or indirectly associated with the company (as directors, officers or employees, for instance) in a six-month period prior to the alleged act of insider trading, and include certain categories of ‘deemed to connected’ persons, including the immediate relatives of people so connected, as well as entities related to the listed entity such as holding companies and subsidiaries.

[35] Explanation to Regulation 3(2A), the PIT Regulations.

[36] Regulation 3(2A), the PIT Regulations.

[37] Regulation 9, the PIT Regulations.

[38] Regulation 9A (6), the PIT Regulations.

[39] Chapter IIA, the PIT Regulations.

[40] id., at p. 160.

[41] Regulation 30, the Listing Regulations.

[42] Regulation 3, the Takeover Regulations.

[43] Regulations 29–31, the Takeover Regulations.

[44] ‘Over 13,000 enforcement actions taken in illiquid stock options in 2 years: SEBI’, Indian Express, 12 July 2023, available at (last accessed on 5 September 2023).

[45] Regulation 9 read with Schedule B of the PIT Regulations.

[46] National Securities Depositories Limited v. SEBI, reported at (2017) 5 SCC 517.

[47] Section 11C, the SEBI Act.

[48] id.

[49] Sections 27–32, CPC.

[50] Sections 126–129, the Indian Evidence Act.

[51] id.

[52] id.

[53] Under Section 11C(6) of the SEBI Act, actionable violations include the failure to provide information or documentation called for by SEBI and failure to appear before SEBI or answer questions posed by SEBI officials, among others.

[54] Computed on a conversion rate of USD 1 = INR 83, prevailing as on 5 September 2023.

[55] id.

[56] Section 11C(6), the SEBI Act.

[57] Section 1(2), the SEBI Act.

[58] Section 11C, the SEBI Act.

[60] Available at (last accessed on 5 September 2023).

[61] A complete list of MOUs executed by SEBI with various securities regulators is available at (last accessed on 5 September 2023).

[62] Adjudication Order in respect of Ms. Shruti Vora in the matter of circulation of UPSI through WhatsApp messages with respect to Bata Limited, SEBI Order dated 4 June 2020 at Paragraph 58, available at (last accessed on 5 September 2023).

[63] id.

[64] Shruti Vora v. SEBI, Securities Appellate Tribunal – Appeal No. 308 of 2020, Judgment dated 22 March 2021, available at (last accessed on 5 September 2023).

[66] Regulation 2(i), proposed USTA Regulations.

[67] Regulation 2(j) of the proposed USTA Regulations defines an ‘unusual trading pattern’ as one that: (1) involves a substantial change in risk taken in one of more securities over a short period of time; and (2) consequently delivered abnormal profits or averted abnormal losses during said period.

[68] ‘Centre turns down Sebi request to tap phones in insider trading cases’, Business Standard India, 21 August 2020, available at (last accessed on 5 September 2023).

[69] Section 177(9), the Companies Act.

[70] Regulation 22, the Listing Regulations.

[71] Chapter III-A, the PIT Regulations.

[72] Regulation 7D, the PIT Regulations.

[73] Such money laundering investigations would proceed under the provisions of the Prevention of Money Laundering Act 2002 (PMLA).

[74] Such criminal investigations would proceed under the provisions of Indian criminal law, under Indian Penal Code 1860 (IPC), the Code of Criminal Procedure 1973 (CrPC) and the Indian Evidence Act 1872 (the Evidence Act).

[75] Sections 11 and 11B, the SEBI Act.

[76] Section 15, the SEBI Act.

[77] Section 12(3), the SEBI Act.

[78] Devendra Damle and Bhargavi Zaveri-Shah (National Institute of Public Finance and Policy), ‘Enforcement of securities laws in India: An empirical overview’ (a SEBI-supported empirical survey) 19 September 2022, available at (last accessed on 5 September 2023).

[79] Section 11(4)(a), the SEBI Act.

[80] Section 11(4)(b), the SEBI Act.

[81] Section 11(4)(c), the SEBI Act.

[82] Section 11(4)(e), the SEBI Act.

[83] Anand Rathi v. SEBI, reported at (2001) SCC Online Bom 381.

[84] Rule 4(6), the Adjudication Rules.

[85] Rule 4(1), the Adjudication Rules.

[86] Rule 4(3), the Adjudication Rules.

[87] Rule 5, the Adjudication Rules.

[88] Computed on a conversion rate of USD 1 = INR 83, prevailing as on 5 September 2023.

[89] Section 15J, the SEBI Act.

[90] Section 24, the SEBI Act.

[91] Section 12, the SEBI Act read with Regulation 24, SEBI (Intermediaries) Regulations 2008.

[92] Section 28A, the SEBI Act.

[93] SEBI (Settlement Proceedings) Regulations 2018.

[94] Detailed formulae for calculation of indicative settlement amount in case of various securities law violations are provided in Schedule II of the Settlement Regulations.

[95] Chapter V, Schedule II, the Settlement Regulations.

[96] Regulation 16, the Settlement Regulations.

[97] SEBI General Order on Delegation of Powers, dated 31 July 2019.

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