Selling Shares While Holding UPSI Is Insider Trading Regardless of Motive or Profit: Supreme Court Rejects “Corporate Purpose” Defence

Case Name: Securities and Exchange Board of India v. Rajeev Vasant Sheth and Others

Date of Judgment: 11 August 2026

Citation: 2026 INSC 826

Bench: Justice Sanjay Karol and Justice Nongmeikapam Kotiswar Singh

Held: The Supreme Court held that under Regulation 4(1) of the SEBI (Prohibition of Insider Trading) Regulations, 2015, trading in securities while possessing unpublished price-sensitive information is sufficient to attract liability for insider trading. Once SEBI establishes that a person possessed UPSI and traded during the relevant period, the transaction is presumed to have been motivated by that information.

The reason for undertaking the trade, the purpose for which the sale proceeds were used, and the fact that the insider earned little or no profit are irrelevant. Consequently, a purported “legitimate corporate purpose,” such as selling shares to prevent a company’s account from becoming a non-performing asset, cannot independently exonerate an insider under the 2015 Regulations.

The defences enumerated in the proviso to Regulation 4(1) are illustrative rather than exhaustive because they are preceded by the word “including.” Nevertheless, any additional defence must be similar in nature to the expressly recognised exonerating circumstances. A general plea that the trade was undertaken for a bona fide or legitimate corporate purpose does not override the statutory presumption.

The Supreme Court distinguished the position under the earlier SEBI (Prohibition of Insider Trading) Regulations, 1992. Unlike the 1992 regime, the note appended to Regulation 4(1) of the 2015 Regulations expressly declares that the reason for trading and the use of the proceeds are irrelevant. Decisions rendered under the 1992 Regulations cannot therefore be mechanically applied to transactions governed by the 2015 Regulations.

Summary: Tara Jewels Limited was a listed company engaged in the jewellery business. Rajeev Vasant Sheth served as its Chairman and Managing Director, while his daughters, Aarti Sheth and Divya Sheth, were promoters and vice presidents of the company.

The company suffered a net loss of ₹166.80 crore during the quarter ending September 2017, compared with a net loss of ₹6.62 crore in the preceding quarter. Its net sales also declined by approximately 69%. These adverse financial results constituted unpublished price-sensitive information between 2 October and 29 November 2017.

During the UPSI period, Rajeev Vasant Sheth sold 30,93,948 shares, representing approximately 12.56% of the company’s total shareholding, followed by another 29,75,000 shares through subsequent transactions. Aarti Sheth and Divya Sheth each sold their entire holding of 1,14,440 shares. By selling the shares before disclosure of the adverse financial results, the respondents collectively avoided losses of approximately ₹1.38 crore.

SEBI issued an impounding order-cum-show cause notice on 4 September 2020. Its Whole Time Member found all three respondents guilty of insider trading under Sections 12A(d) and 12A(e) of the SEBI Act and Regulations 3(1) and 4(1) of the 2015 PIT Regulations.

Rajeev Vasant Sheth was restrained from accessing or dealing in the securities market for one year, while Aarti Sheth and Divya Sheth were similarly restrained for six months. All three were directed to disgorge the losses avoided, together with interest at 12% per annum from 30 November 2017.

The Whole Time Member also imposed penalties under Sections 15G and 15HB of the SEBI Act. Rajeev Vasant Sheth was penalised ₹25 lakh for insider trading and ₹5 lakh for violation of the prescribed code of conduct. Aarti Sheth and Divya Sheth were each penalised ₹10 lakh for insider trading and ₹1 lakh for code-of-conduct violations.

The respondents appealed to the Securities Appellate Tribunal. SAT accepted their explanation that Tara Jewels was at risk of its account being downgraded to a non-performing asset and that the shares had been sold to address the company’s financial difficulties. SAT treated this explanation as sufficient to rebut the charge of insider trading.

SAT also observed that there was hardly any difference between the closing price of Tara Jewels’ shares on 29 and 30 November 2017. It therefore concluded that the respondents had not sold their shares to avoid further losses. On this reasoning, SAT set aside SEBI’s order.

SEBI challenged SAT’s decision before the Supreme Court under Section 15Z of the SEBI Act. The Court examined the statutory scheme governing insider trading, including Sections 11, 11B, 12A, 15G and 15J of the SEBI Act and Regulations 2, 3 and 4 of the 2015 PIT Regulations.

The Court observed that insider trading essentially involves dealing in a company’s securities while possessing confidential information capable of materially affecting the price once made public. Regulation 4(1) prohibits an insider from trading while possessing UPSI and creates a rebuttable presumption that such trading was motivated by the knowledge and awareness of that information.

The respondents did not dispute that they were insiders, possessed the company’s adverse financial results and sold substantial portions—or the entirety—of their shareholding during the UPSI period. Those admitted facts were sufficient to trigger the presumption under Regulation 4(1).

The note appended to Regulation 4(1) expressly states that the reasons for which an insider trades and the purposes to which the proceeds are applied are irrelevant. The Court therefore rejected the contention that the shares were sold to meet the company’s financial requirements or prevent its account from becoming an NPA. It also held that the absence of profit was immaterial because insider-trading liability extends to avoiding losses as well as obtaining wrongful gains.

The respondents relied upon SEBI v. Abhijit Rajan, where shares had allegedly been sold to fund a corporate debt restructuring package and prevent the parent company from entering bankruptcy. The Supreme Court distinguished that decision because the transactions there were governed by the 1992 PIT Regulations.

The 1992 Regulations did not contain a note equivalent to the one appended to Regulation 4(1) of the 2015 Regulations. Courts and tribunals therefore had greater scope under the earlier regime to examine the purpose behind a trade. After the 2015 Regulations came into force, the insider’s motive and application of proceeds could no longer be considered for determining liability.

The Court also disapproved SAT’s reliance upon Rakesh Agrawal v. Securities Exchange Board of India to recognise “legitimate corporate purpose” as a defence. That decision was rendered under the 1992 Regulations and could not override the express language of the 2015 regime.

As the respondents had sold shares while admittedly possessing UPSI and had failed to establish any recognised or analogous defence, the Supreme Court concluded that the charge of insider trading stood proved.

Decision: The Supreme Court allowed SEBI’s appeal and set aside the Securities Appellate Tribunal’s decision. It restored the Whole Time Member’s finding that Rajeev Vasant Sheth, Aarti Sheth and Divya Sheth had committed insider trading.

The order requiring disgorgement of approximately ₹1.38 crore in avoided losses, together with the prescribed interest, was restored. The penalties imposed for violating the code of conduct under Regulation 9(1) read with Schedule B of the 2015 PIT Regulations were also upheld.

The Court, however, reduced the penalty imposed upon Rajeev Vasant Sheth under Section 15G from ₹25 lakh to the statutory minimum of ₹10 lakh. The corresponding ₹10 lakh penalties imposed upon Aarti Sheth and Divya Sheth were maintained. The modified penalties were directed to be paid within three months, if not already paid.