The Supreme Court has restored SEBI's insider trading findings against the promoters of Tara Jewels Limited, setting aside a Securities Appellate Tribunal order that had gone the other way, in a ruling — SEBI v. Rajeev Vasant Sheth — that tightens the practical burden on anyone trading a listed company's securities while holding unpublished price-sensitive information (UPSI).
The facts centred on a UPSI window running from October 2 to November 29, 2017, during which Rajeev Vasant Sheth — chairman and managing director of Tara Jewels, a company then facing serious financial difficulties — sold a substantial portion of his shareholding, while his daughters sold their entire holdings. SEBI's case was that these sales, made while the company's distressed financial position remained undisclosed price-sensitive information, avoided losses of approximately ₹1.38 crore that the promoters would otherwise have incurred had they sold after the information became public.
The Bench of Justice Sanjay Karol and Justice Augustine George Masih held that mere possession of UPSI, combined with trading in the company's securities while that information remains undisclosed, is by itself sufficient to attract the presumption of insider trading under the SEBI (Prohibition of Insider Trading) Regulations, 2015 — the Court was explicit that what the trader actually did with the sale proceeds, and whether the trade even resulted in a profit rather than merely an avoided loss, has no bearing on whether the underlying offence is made out. The defences available under the 2015 Regulations, the Court clarified, are not exhaustively limited to the categories listed in the regulations themselves, but any additional defence relied upon must be genuinely similar in character to those specified — a real constraint on how far respondents can stretch novel justifications for UPSI-period trades.
The Court did moderate the consequence at the margins, reducing the penalty on Rajeev Vasant Sheth from ₹25 lakh to ₹10 lakh while restoring SEBI's disgorgement direction covering the full avoided loss. For promoters, directors, and other insiders of listed companies, the case reinforces that 'I didn't actually profit' or 'the sale proceeds were used for a legitimate purpose' are not, on their own, viable defences to an insider trading finding — the regulatory focus is squarely on the fact of trading while in possession of UPSI, not on the trader's downstream motive or use of funds. Compliance teams should treat any trading window overlapping a genuine UPSI event — undisclosed financial distress, an unannounced material transaction, or similar — as carrying real enforcement risk regardless of how the trade is subsequently explained.