Overspilling The Evolution Of Corporate Frauds Concerning Insider Trading In India
Author: LawSphereX
Category: Corporate & Insolvency
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OVERSPILLING THE EVOLUTION OF CORPORATE
FRAUDS CONCERNING INSIDER TRADING IN INDIA
Kamakshi Srivastava, CHRIST (Deemed to be) University
ABSTRACT
The evolution of corporate fraud in India reflects increasing complexities and ambiguities in the financial markets, highlighting the inadequacies and various challenges the authorities face to mitigate these crimes. Corporate fraud includes a wide range of illegal activities like accounting fraud, insider trading, corruption, etc. , affecting the market's integrity and investor confidence. Insider trading as a corporate fraud in India traces its roots back to the pre-independence era when no regulations existed. In the 1990s, when the economy went through liberalization, the country witnessed a sudden increase in corporate fraud cases due to increased integration and globalization of Indian markets with the global economy.
This research paper explores the evolution of corporate fraud concerning insider trading in India by examining its historical development, regulatory framework, and the challenges the enforcement agencies face. The primary aim of this paper is to provide a concise overview of the evolution of corporate fraud in India, specifically concerning insider trading. The paper also delves into how insider trading has impacted corporate governance and investor protection in the capital market. The author's objective is to analyze insider trading laws' evolution and effectiveness in mitigating corporate fraud in India. Keywords: Corporate frauds, evolution, insider trading, globalization, governance
INTRODUCTION
Corporate fraud, a pervasive issue in the global financial landscape, poses significant threats to market integrity, investor confidence, and the broader economy. Insider trading is distinct from other corporate misbehavior due to its nature and serious consequences. Insider trading is the unlawful and unethical trading of stock or other securities in a public corporation by people with access to substantial, non-public information about the company. It highlights the unethical issues involved by directly undermining investor trust and market fairness. Corporate Governance1 Ensures that the companies are managed fairly and transparently and are accountable to all shareholders, employees, customers, and society.
However, insider trading reflects a breach of this governance framework where the individuals share privileged information for personal gain at the expense of other ordinary investors. This practice or act disturbs the market and questions the principles of equality and transparency, which are essential for a healthy financial market. Insider trading2, a topic of immense significance in corporate law, involves purchasing or selling stock in a publicly listed corporation by someone with substantial, non-public knowledge about that stock. While insider trading is permitted under certain conditions, it becomes illegal when trades are made using secret knowledge that has not yet been disclosed to the public.
This form of insider trading is a primary concern for regulatory authorities, as it undermines the integrity of the financial markets and can have severe consequences for businesses and the overall economy. Insider trading is the act of trading in a company's securities by individuals who, due to their privileged position in the company, have access to non-public material information. Material information could influence an investor's decision to buy or sell the security, such as upcoming mergers, acquisitions, or significant financial results. Non-public information has not been disclosed to the public. When the insiders act on this information before it is publicly known, it gives them an unfair advantage over ordinary investors. The concept of insider trading is not a recent development; it has been present in the market since the early days of financial markets.
There was almost no regulation, and it was considered a perk for corporate insiders. Since the 20th century, several significant changes have been made 1 Corporate Governance is the system of rules, practices, and processes by which a company is directed and controlled. Corporate governance refers to how companies are governed and for what purpose. 2 Insider trading is when one with access to non-public, price-sensitive information about the company's securities subscribes, buys, sells, or deals, or agrees to do so or counsels another to do so as principal or agent.
toward regulating this practice. The Securities Exchange Act of 19343 The United States marked a significant moment by introducing provisions to curb insider trading. Similarly, other countries have also brought regulatory frameworks to address this issue. However, despite the enforcement, insider trading had found its way by adapting to new market changes and challenging the gaps in the regulation. The evolution of complex corporate structures and the advancement of digital trading platforms have introduced new challenges in detecting insider trading.
LITERATURE REVIEW
1. Narayanan, Madhav V., and A. Subramanian. "Insider Trading in India: Contrasting
Evidence from the Recent Past." Economic and Political Weekly, vol. 41, no. 3, 2006, pp. 235-245. The authors provide a focused analysis of insider trading cases in India from 2000 to 2005. They discuss the inadequacies in the regulatory framework and the lax enforcement by SEBI during this period. The study notes that despite laws, the lack of stringent penalties and the delay in judicial processes allowed insider trading to proliferate. This paper sets the stage for understanding the necessity of the regulatory overhauls after 2005, marking a transition towards a more vigilant regulatory environment in the subsequent decade.
2. Avtar Singh Ramaiya, The Development of insider trading laws in India, 6 Ind. J. Corp.
L. 59, 59-92 (2020)
The author of this research article thoroughly analyzes how insider trading laws in India have evolved over the years, focusing on SEBI's changing regulatory framework from 1992 to 2020. Ramaiya details how insider trading was addressed in pre-independence corporate law and how the post-independence SEBI regulations have shaped modern enforcement standards. The article provides an excellent historical overview but lacks substantial empirical data to assess the effectiveness of recent regulations. While it outlines the legislative changes well, a more critical analysis of case law and specific enforcement actions would have added depth to the discussion. For instance, it could critically analyze the SEBI vs.
Sahara case or the recent NSE 3 An act to provide for the regulation of securities exchanges and over-the-counter markets operating in interstate and foreign commerce and through the mail, to prevent inequitable and unfair practices on such exchanges and markets, and for other purposes.
co-location case. The theoretical approach could benefit from a more vigorous practical application.
3. Ajay Shah, origins of insider trading in India in the development of Indian Corporate
Law 15 (Cambridge University. Press, 2020) In this chapter, the author discusses the foundational roots of insider trading in India, tracing them back to the colonial era. He emphasized how the lack of regulations allowed traders to use non-public information to their advantage, exploiting early stock exchanges in Bombay. The chapter highlights the informal nature of the market thesis, explaining how colonial corporations exploited insider information with minimal oversight From British authorities. The author argues that introducing a formula stock market was a turning point in regulating insider trading. The author's reliance on colonial-era documentation districts the understanding of how traditional practices transitioned into modern corporate frauds.
4. Deepak Parekh, post-independence corporate fraud and insider trading in India, in
fraud and white collar crime in emerging markets 45 (oxford univ. Press, 2021) In this chapter, the author provides a detailed analysis of the period immediately following India's independence, focusing on the evolution of corporate frauds with insider trading at the core. The author points out how the absence of strong regulatory frameworks in the 1950s and 60s allowed corporate insiders to manipulate stock prices and securities information to their benefit. It traces the historical growth of regulatory bodies, including the establishment of SEBI in 1988 as a response to unchecked corporate fraud.
5. Vandana Singh, the evolution of SEBI and insider trading laws in Indian securities
market: regulation and growth 62 (SAGE Publications, 2022) The author in this chapter centers on the legal evolution of insider trading regulations under SEBI. It offers a comprehensive analysis of key legislative developments such as the SEBI Prohibition of insider trading regulations of 1992 and its subsequent amendments in 2015 and
2019. The author examines the progressive tightening of the legal framework and highlights
landmark cases where SEBI's enforcement actions were important in shaping India's corporate environment. The chapter, however, lacks a critical evolution of SEBI's enforcement mechanisms and does not offer solutions for improving enforcement.
METHODOLOGY
The methodology used in this paper is a comprehensive doctrinal method of research. It aims to explain the evolution of corporate fraud in India. The research mainly focuses on the evolution of insider trading laws in India. Doctrinal research methods in the law field provide for arranging and analyzing the legal framework and case laws to discover new things by surveying legal literature without legal fieldwork. This thorough approach instills confidence in the robustness of the research. The source of data is both primary and secondary. The primary source consists of various statutes and provisions in law and acts. The secondary source comprises journals, articles, books, research reports, and online database materials related to companies and corporate fraud.
BACKGROUND
Insider trading is a form of corporate fraud involving the illegal use of non-public information to gain an unfair advantage in trading securities. In India, the evolution of insider trading as a corporate fraud has undergone significant transformation over time. The legal landscape, regulations, and enforcement mechanisms have evolved from a largely unregulated environment pre-independence to a comprehensive and robust regulatory framework. Insider trading is a concept that emerged within the broader ambit of securities law, which involves trading a company's stock or other securities by individuals who possess unpublished pricesensitive information about the company. It is considered unethical and illegal in most jurisdictions and countries due to its potential to disrupt the integrity and fairness of financial markets.
In India, insider trading regulation has evolved significantly, with specific attention to curbing the misuse of privileged information. Before we explore India's journey, it is crucial to grasp the global origins of insider trading. The concept gained traction with the rise of stock markets in the late 19th and early 20th centuries. The pivotal case of Strong v. Repide (1909)4 set the stage for insider trading laws and established the U. S. Securities and Exchange Commission (SEC)5 In 1934. This
4 U.S. Reports: Strong v. Repide, 213 U.S. 419 (1909)
5 an independent agency of the United States federal government, created in the aftermath of the Wall Street crash in 1929. Its primary purpose is to enforce laws against market manipulation.
commission's role in monitoring and prosecuting insider trading significantly influenced many countries, including India, to adopt a legal framework for regulating financial markets. Insider trading, as a practice, predated independence in 1947. However, due to independence, there was limited economic development, and the concept of insider trading remained largely unknown and unregulated. India's stock market history was first established in the 19th century with the creation of the Bombay Stock Exchange (BSE)6 In 1875. However, the regulation of securities markets was essentially non-existent during the colonial era and early postindependence years, leaving the market vulnerable. The British colonial government's economic policies were not conducive to developing a robust securities market, and there was no framework addressing insider trading or any form of securities fraud.
With little oversight, business practices were primarily governed by informal arrangements and contracts. Although some informal insider trading may have occurred during this period, the Indian financial markets were not mature enough to experience large-scale corporate fraud. The lack of regulation and oversight made detecting and prosecuting insider trading difficult. The first recognition of the need for a regulatory framework in the securities market came during the late colonial period when efforts were made to organize and regulate stock exchanges. However, insider trading was not the focus of these early efforts. The first significant legislative framework to govern the Indian capital markets was introduced through the Securities Contracts (Regulation) Act 19567.
This act provided basic rules for the functioning of stock exchanges and laid the groundwork for regulating securities trading. However, "insider trading" was not explicitly recognized or regulated in this period. After independence in 1947, India embarked on the part of economic development with the establishment of several state-owned enterprises. The stock markets began to gain importance, and corporate practices started to be scrutinized more carefully. However, insider trading remains unregulated for the first few decades of independence. The Companies Act, 1956,8 It was the first significant legislative attempt to regulate corporate governance and establish rules for the conduct of companies. However, it did not directly address inside trading as a corporate 6 an Indian stock exchange with the highest number of companies (5,246 (as of February 8, 2022)) is located on Dalal Street.
Established with the efforts of cotton merchant Premchand Roychand in 1875, it is the oldest stock exchange in Asia and the tenth oldest in the world. The BSE is the world's 6th largest stock exchange, with a market capitalization exceeding US$5 trillion on May 21, 2024 7 An act to prevent undesirable transactions in securities by regulating the business of dealing therein and providing for certain other matters connected to that. 8 Act no. 1 of 1956. An act to consolidate and amend the law relating to companies and specific other associations.
fraud. The lack of specific laws regarding insider trading allowed individuals with access to confidential, price-sensitive information to exploit such information without facing legal consequences. The situation continued for several decades, and instances of insider trading remained largely unchecked. The Indian markets during the 1960s and 1970s were still under development, and public awareness of corporate fraud was minimal. However, economic liberalization in the late 1980s and early 1990s transformed the Indian financial landscape, necessitating stronger corporate practice regulations. The 1980s marked a period of significant transformation for India's financial markets, primarily driven by increased public participation in equity markets and a series of stock market scandals that exposed the vulnerabilities and limitations of markets.
To meet the growing challenges of regulating financial markets, the Indian government established the Securities and Exchange Board of India (SEBI) 9In 1988. Initially lacking statutory power, SEBI's authority was significantly enhanced in 1992. Following the Harshad Mehta scam10 Moreover, according to the recommendations of the Narasimhan Committee11, SEBI was granted extensive statutory powers under the SEBI Act
1992.12 This marked a pivotal moment in India's efforts to regulate insider trading, as SEBI
was now empowered to monitor and take decisive actions against malpractices in securitized markets. With the SEBI Act of 1992, SEBI was empowered to regulate and prohibit fraudulent and unfair trade practices, including inside trading. The first explicit regulations targeting insider trading came in 1992 when SEBI introduced the SEBI ( Prohibition of insider trading ) regulations 1992. These regulations defined insider trading and prohibited insiders, directors, employees, and others with access to non-public information from trading in securities on such information. These regulations also introduced penalties for violations and required companies to disclose insider trading policies. However, the 1992 regulations had several limitations.
The 9 regulatory body for securities and commodity markets in India under the administrative domain of the Ministry of Finance within the Government of India. It was established on April 12, 1988, as an executive body and was given statutory powers on January 30, 1992, through the SEBI Act 1992
10 Harshad S. Mehta vs Central Bureau of Investigation 1992 (24) DRJ392, ILR1993DELHI274
11 Two such expert Committees were set up under the chairmanship of Maidavolu Narasimham. They submitted their recommendations in the 1990s in reports widely known as the Narasimham Committee-I (1991) and the Narasimham Committee-II (1998) Reports. These recommendations not only helped unleash the potential of banking in India but are also recognized as a factor in minimizing the impact of the global financial crisis starting in 2007. 12 An Act to establish a Board to protect the interests of investors in securities and promote the development of and regulate the securities market and for matters connected therewith or incidental thereto.
definitions of "insider"13 and "price-sensitive information. "14 Were narrow, and enforcement was challenging due to the lack of technological infrastructure and investigation mechanisms. Moreover, the Indian markets were still developing, and SEBI faced significant challenges in detecting and prosecuting insider trading cases. One of the significant incidents during this time was the infamous Harshad Mehta scam, which highlighted various malpractices, including insider trading. As the stock markets expand and the flow of capital increases, the issue of insider trading becomes more prominent. Although the Harshad Mehta scam primarily involved market manipulation through fraudulent transactions in government securities, it underscored the need for comprehensive market regulations and strict enforcement of insider trading laws.
Following the Mehta scam, SEBI took several steps to strengthen the regulatory framework. In 2002, SEBI introduced the SEBI (Prohibition of insider trading regulations) 2002, which replaced the 1992 regulations. The new regulations expanded the definitions of "insider" and "price sensitive information," introduced stricter disclosure requirements for companies, and imposed more severe penalties for violations. SEBI also set up a dedicated wing for investigation and enforcement to deal with insider trading cases. The 2002 regulations significantly improved over the previous framework, but they still face challenges in enforcement. Insider trading cases were often difficult to prove due to the lack of direct evidence, and SEBI struggled to keep pace with the rapid involvement of financial markets.
Nonetheless, the 2000s witnessed several high-profile cases of insider trading, including those involving executives from companies like Wipro and Infosys, which helped raise awareness about the severity of the issue. Recognizing the need for more comprehensive regulations, SEBI undertook a significant overhaul of insider trading laws in 2015. The SEBI (Prohibition of insider trading) Regulations 2015 replaced the 2002 regulations and introduced several fundamental changes.
These regulations broadened the definition of "insider" to include anyone possessing price- 13 [(e) "insider" means any person who (i) is or was connected with the company or is deemed to have been connected with the company and is reasonably expected to have access to unpublished price-sensitive information in respect of securities of [a] company, or (ii) has received or has had access to such unpublished price sensitive information ;] 14 [(ha) "price sensitive information" means any information that relates directly or indirectly to a company and which, if published, is likely to materially affect the price of securities of the company. Explanation.
—The following shall be deemed to be price-sensitive information:— (i) periodical financial results of the company; (ii) intended declaration of dividends (both interim and final); (iii) issue of securities or buy-back of securities; (iv) any major expansion plans or execution of new projects. (v) amalgamation, mergers, or takeovers; (vi) disposal of the whole or substantial part of the undertaking; (vii) significant changes in policies, plans, or operations of the company ;]
sensitive information, not just company employees or directors. This change aimed to capture a wide range of individuals, including intermediaries, consultants, and business partners, who could potentially engage in insider trading. The 2015 regulations also introduced the concept of "legitimate purposes. "15 For sharing price-sensitive information, clarifying that such information was allowed for business purposes, provided that it was not used for illegal trading. Additionally, the regulations required companies to establish more robust internal controls to prevent insider trading, including maintaining structured digital databases of persons with access to price-sensitive information. One of the most significant features of the 2015 regulations was the enhancement of SEBI's enforcement powers.
SEBI was given the authority to conduct on-site inspections, call for information, and initiate legal proceedings against individuals suspected of insider trading. These powers help SEBI detect and prosecute insider trading cases more effectively. In recent years, SEBI has continued to refine the regulatory framework for insider trading in response to the evolving nature of corporate fraud. The introduction of technology in trading, the increasing complexity of financial markets, and the globalization of markets have presented new challenges for regulators. SEBI has taken steps to address these challenges by introducing new technology for surveillance and monitoring, enhancing its investigative capabilities, and Collaborating with other international regulatory bodies to combat cross-border insider trading. Despite these efforts, insider trading remains a significant issue in India.
The prosecution of insider trading cases is still hindered by the difficulty of gathering evidence and proving intent. Moreover, Public awareness of insider trading as corporate fraud remains limited, and many instances of insider trading go unreported or unpunished. The concept of insider trading has been a contentious issue in the regulation of financial markets, evolving over centuries, and was influenced by various socio-economic and political changes. In India, insider trading has its roots in the colonial period, particularly in the 18th and 19th centuries when the country was under British rule. The economic structure of preindependence India was significantly shaped by the British colonial policies, which were 15 "Legitimate Purpose" shall mean sharing UPSI in the ordinary business or on a need-to-know basis.
The company may share the UPSI if required in the interest of the company. Legitimate purpose shall interalia include sharing of UPSI on a known basis by an insider with partners, collaborators, lenders, customers, suppliers, merchant bankers, legal advisors, auditors, insolvency professionals, or other advisors or consultants, provided that such sharing has not been carried out to evade or circumvent the prohibitions of the Regulations. (Regulation 3(2A) and 3(2B)).
designed to exploit resources and capital for the benefit of the British Empire. This era saw the establishment of the Indian stock market, a development primarily driven by the British East India Company ( EIC ) needs and the emerging economic activities in India. However, insider trading was not regulated during this period. To fully grasp the specific aspects of insider trading, it is crucial to comprehend the broader economic context of colonial India. The British East India Company, founded in 1600, shaped India's economic and financial systems. By the late 18th century, the company had established a dominant position in India, controlling vast territories and engaging in extensive trade, especially in textiles, spices, and tea. As the growth increased, capital was needed to fund the operations. This led to the emergence of the stock market, as the company issued bonds and shares.
The Indian economy, which was dominated and lacked industrialization, had little scope for a developed capital market. Insider trading was not prominently discussed or regulated during this era. However, some aspects of the stock market existed in that era, driven mainly by a few individuals with privileged access to information in limited financial circles. The lack of regulation during the colonial period significantly impacted the financial markets, allowing for the emergence of insider trading. By the 19th century, trading in securities had become relatively common in the presidential towns of Bombay, Calcutta, and Madras. The informal stock markets in Bombay ( now Mumbai ), Calcutta ( now Kolkata ), and Madras ( now Chennai ) were primarily driven by the trading activities of British merchants who mainly dealt with the shares and bonds of the British East India Company.
The capital markets emerged in India during the late 19th century with the establishment of the Bombay Stock Exchange ( BSE ) in
1875. The BSE was the first formal stock exchange in India. This establishment was a response
to the rise of trade and industry, such as textile mills, railways, and other industries, under British rule, as insider trading and stock market speculation were standard practices without any regulation during this period. The BSE was initially largely unregulated, with no formal laws preventing individuals with inside information from trading. While formal regulations were absent, the period witnessed speculative behavior that would today be classified as insider trading. While British officials and traders dominated the early stock markets, Indian merchants and financiers began to play a more prominent role by the late 19th and early 20th centuries. Prominent Indian business families, such as the Tatas, Birlas, and others, started to invest in the stock markets and build financial empires. Wealthy merchants, brokers, and industrialists
who were closely tied to and had contacts with British officials or had access to business dealings often exploited this information for their gains and profits, which made it difficult to classify insider information trading or challenge the person responsible for insider trading during that period. The lack of governmental control over the stock markets was one of the defining features of the pre-independence era. In contrast to Britain, where insider trading was first acknowledged as a problem in the late 1800s, India lacked official rules or regulations. Keeping the peace and ensuring the smooth operation of the financial markets were the British colonial government's top priorities, not controlling traders' behavior. This lack of oversight allowed insider trading to flourish.
Wealthy investors, both British and Indian, could use their access to privileged information to engage in speculative trading without fear of legal repercussions. While the Bombay Stock Exchange introduced some level of transparency and organization to the market, it did not have the authority or the mechanisms to prevent insider trading or enforce ethical standards. After independence in 1947, India inherited a vast capital market and a largely unregulated economic structure heavily influenced by colonial laws. In the immediate post-independence period, we were focused on building the infrastructure, addressing widespread poverty, and stabilizing the nation's economy. In the early years, India's financial and securities market was underdeveloped, and the need for insider trading regulations was not perceived as urgent.
During the 1950s, insider trading was not recognized as a significant economic issue, and there were no explicit and strict laws to regulate such practices. The primary legislation governing securities trading, the Companies Act of 195616, did not include specific provisions addressing insider trading. The lack of well-established stock exchanges and market infrastructure further increased the need for strict regulations. While the Companies Act did provide for general regulations concerning corporate governance and securities trading, it lacked specific measures to combat insider trading. During this period, corporate governance began to take root in India, but the challenges of market manipulation, including insider trading, needed to be adequately addressed. The Indian capital market saw its first significant regulatory milestone with the introduction of the Companies Act of 1956.
This act, a crucial step in the evolution of insider trading regulations, laid the foundation for corporate governance and investor protection in India. Though the law primarily focused on corporate disclosures and fiduciary responsibilities, it did not directly address the issue of insider trading. Under the act, companies were required
16 An Act to consolidate and amend the law relating to companies and specific other associations
to maintain transparency in their financial dealings, which indirectly curtailed some aspects of insider trading by making the company's information more publicly available. The 1980s marked a crucial turning point in India's regulatory approach towards insider trading. The capital markets were expanding, and cases of stock market manipulation and corporate fraud became more frequent. The government formed the Sachar Committee in 197817, which examined various aspects of Corporate Governance, including insider trading. The Sachar committee's report, submitted in 1979, highlighted the increasing misuse of insider information and recommended legal reforms. The committee emphasized the need for stringent laws to curb insider trading and protect investors. This report was instrumental in bringing insider trading to the forefront of discussions on regulatory framework reform in India.
However, despite the recommendations, little action was taken in the immediate aftermath, and insider trading continued to flourish unchecked during the 1980s. Significant challenges and milestones have marked India's journey to mitigate insider trading. The Securities and Exchange of India (SEBI) has played a critical role in developing a regulatory framework to address insider trading. The SEBI (Prohibition of Insider Trading) Regulations, introduced in 1992 and subsequently amended, provide the foundation for regulating insider trading in India. The regulations define key terms, responsibilities, obligations of insiders, and penalties for violations. The key provisions of the regulation also include the definition of insiders, the scope of unpublished price-sensitive information (UPSI), and the duties of various market participants.
However, despite all these efforts, insider trading is still a persistent issue in India. High-profile cases like the Satyam Computer Services scandal and the recent ICICI Bank case underscore the ongoing challenges in curbing this malpractice. These cases highlight the need for robust and strict enforcement mechanisms and regulatory updates. The SEBI (Prohibition of Insider Trading) Regulations 2015 were introduced to curb corporate fraud and promote fair trading practices. Violating these regulations attracts civil and criminal penalties under Indian law, including monetary penalties, imprisonment, market bans, etc. The companies must adopt a code of conduct to ensure compliance with insider trading regulations.
Insider trading was criminalized under section 19518 The Companies Act 2013 17 The committee further recommended that the amendments to the Companies Act incorporate the provisions relating to the prohibition of Insider trading, which need to contain huge penalties and punishments. 18 Omitted by the Companies (Amendment) Act, 2017,w. e. f. 09. 02. 2018[S. O. 630(E) dated 09. 02. 2018], the Section: "195. (1) No person, including any director or key managerial personnel of a company, shall enter into insider trading:
enhanced corporate governance and expanded corporate liability for fraudulent practices. The Indian companies must adopt internal compliance frameworks to prevent insider trading.
RESULTS / FINDINGS
The Securities and Exchange Board of India has emerged as the central regulatory body for combating insider trading in India. The SEBI Act of 1992 and the various SEBI (Prohibition of Insider Trading) Regulations are India's initial response to reduce insider trading. The evolution from the 1992 regulations to the current existing regulations has addressed several gaps by redefining the definitions and introducing the concept of legitimate purpose and disclosure norms. Despite the progress of legal amendments, several regulatory challenges still exist. Revisions like the SEBI (PIT) Regulations 2015 have strengthened the compliance requirements and imposed stricter penalties. Findings indicate that introducing digital surveillance technologies and integrated market monitoring has enhanced the enforcement of SEBI.
The research highlights that corporate governance frameworks in India have increasingly integrated insider trading. The companies are now mandated to adopt a code of conduct under SEBI regulations. This regulatory evolution has positively impacted India's financial markets by reducing market manipulation and boosting investor confidence. It indicates that better enforcement and greater market transparency have enhanced India's reputation among global investors.
RECOMMENDATIONS
India's legal frameworks on insider trading have evolved significantly after introducing the SEBI (Prohibition of Insider Trading) Regulations 1992 and its subsequent amendments. To improve transparency, there is a need to expand disclosure requirements and obligations for promoters and other connected persons. The SEBI has played an important role in enforcing insider trading laws, yet some challenges remain. Establishing dedicated units within SEBI focused on insider trading cases will strengthen the framework and reporting of fraudulent practices. Imposing fiduciary duties on the board to monitor and prevent insider trading and empowering audit committees to oversee financial disclosures and ensure compliance with Nothing contained in this sub-section shall apply to any communication required in the ordinary business or profession or employment or under any law.
(2) If any person contravenes the provisions of this section, he shall be punishable with imprisonment for a term which may extend to five years or with a fine which shall not be less than five lakh rupees but which may extend to twenty-five crore rupees or three times the amount of profits made out of insider trading, whichever is higher, or with both. "
insider trading regulations will encourage corporations to adopt an ethical code of conduct. To enhance public awareness about insider trading and economic consequences, SEBI and stock exchanges should organize regular awareness campaigns, and the officers should undergo mandatory ethics and compliance training. These recommendations can address the legal, regulatory, and practical challenges related to insider trading in India by proposing actionable reforms to strengthen India's corporate fraud prevention framework.