'Motive Or Purpose Irrelevant': Supreme Court Reinstates SEBI Penalties, Holds Avoiding Loss Is No Defence Against Insider Trading Under 2015 Regulations

"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." Supreme Court of India, in a significant ruling dated August 11, 2026, unequivocally held that the 'reasons for which [an insider] trades or the purposes to which he applies the proceeds of the transactions are not intended to be relevant' for determining insider trading under the Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 2015.

A bench of Justices Sanjay Karol and Nongmeikapam Kotiswar Singh thereby set aside a Securities Appellate Tribunal (SAT) order and reinstated charges of insider trading against promoters who had avoided losses amounting to ₹1.38 crores.

The case stemmed from an order by a Whole Time Member (WTM) of SEBI finding Mr. Rajeev Vasant Sheth (Chairman & Managing Director of Tara Jewels Ltd.) and his daughters, Ms. Aarti Sheth and Ms. Divya Sheth (Promoters/Vice Presidents), guilty of insider trading. They had sold substantial shareholdings in Tara Jewels Ltd. between October and November 2017, while in possession of Unpublished Price Sensitive Information (UPSI) about the company's severe financial losses. The Securities Appellate Tribunal (SAT) subsequently overturned the WTM's decision, accepting the respondents' argument that the sales were to avoid losses as the company risked becoming a non-performing asset, citing the proviso to Regulation 4(1) of the PIT Regulations 2015. SEBI challenged the SAT's order before the Supreme Court under Section 15Z of the SEBI Act.

The primary legal issue before the Supreme Court was whether the Securities Appellate Tribunal (SAT) correctly applied the Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 2015, specifically Regulation 4(1) and its accompanying 'Note,' in setting aside the insider trading charges. The Court had to determine if the motive or purpose behind trading while in possession of UPSI is a valid defence under the 2015 Regulations.

Strict Interpretation Of Insider Trading Prohibition Under PIT Regulations 2015

The Supreme Court noted that it was undisputed the respondents were 'connected persons' and 'insiders' as defined under the PIT Regulations, 2015, and were in possession of Unpublished Price Sensitive Information (UPSI) relating to Tara Jewels Limited's severe financial losses. It was also undisputed that they sold large portions or their entire shareholding while in possession of such UPSI, thereby avoiding cumulative losses of approximately ₹1.38 crores. The Court reiterated that Section 12A of the SEBI Act broadly prohibits insider trading.

Motive & Purpose Of Trading Irrelevant Under Regulation 4(1) Note

The Court placed significant emphasis on the 'Note' appended to Regulation 4(1) of the PIT Regulations, 2015, which explicitly states that "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." This crucial 'Note' clarified that once trading while in possession of UPSI is established, the purpose or motive behind such trades becomes irrelevant.

The bench found that the SAT erred by considering the respondents' explanation that the sales were made to avoid further losses due to the company's risk of being downgraded to a non-performing asset. The SAT's observation regarding minimal price difference post-UPSI was also deemed irrelevant given the explicit wording of the 'Note'.

Distinguishing SEBI v. Abhijit Rajan: No 'Note' In 1992 Regulations

The Supreme Court distinguished the present case from its earlier judgment in SEBI v. Abhijit Rajan (2024) 11 SCC 645, a case relied upon by the respondents. The Court highlighted a critical difference: the Abhijit Rajan case was decided under the Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 1992, which did not contain a 'Note' similar to the one in Regulation 4(1) of the 2015 Regulations.

The absence of such a 'Note' in the 1992 Regulations meant that the intent or purpose behind the trades (e.g., to fund a Corporate Debt Restructuring Package) could be considered as a defence. However, the introduction of the 'Note' in the 2015 Regulations created a stricter regime, where such considerations are expressly excluded. The Court stated, "If the same transactions were after the 2015 PIT Regulations, that could not have been considered."

Scope Of Defences Under Regulation 4(1) Is Restrictive

Regarding the nature of the defences provided in Regulation 4(1), which are preceded by the word "including," the Court affirmed that these are not exhaustive. However, it applied the rule of ejusdem generis, stating that any other defence not explicitly listed must be "of the same and similar nature" as those provided. The Court referenced precedents like P. Mohanraj v. Shah Bros. Ispat (P) Ltd. and Siddeshwari Cotton Mills (P) Ltd. v. Union of India to elaborate on this rule of construction.

The bench concluded that the explanation accepted by SAT, pertaining to avoiding further losses due to the company's financial distress, does not fall within the enumerated defences or those of a similar nature under Regulation 4(1) of the 2015 Regulations.

Disgorgement Of Averted Losses Justified Under Section 11B SEBI Act

The Supreme Court upheld the WTM's order for disgorgement of the losses averted by the respondents, amounting to approximately ₹1.38 crores. It referred to the Explanation to Section 11B of the SEBI Act, which empowers SEBI to issue directions, including disgorgement of any amount equivalent to wrongful gain made or loss averted by contravention of the Act or regulations. The Court found the WTM's order for disgorgement to be entirely justified and restored it.

Monetary Penalty Under Section 15G Modified

While the Court restored the WTM's findings of guilt and disgorgement, it partially modified the monetary penalty imposed under Section 15G of the SEBI Act. Taking a "cumulative view of the facts and circumstances," the Court reduced the penalty for Respondent No. 1 (Mr. Rajeev Vasant Sheth) from ₹25 Lakhs to ₹10 Lakhs, aligning it with the penalty imposed on Respondents No. 2 and 3. The penalty imposed under Clause 6 of the Minimum Standards for Code of Conduct to Regulate, Monitor and Report Trading by Insiders, read with Regulation 9(1) of the PIT Regulations 2015, was upheld as justified.

The Supreme Court allowed SEBI's appeal, setting aside the SAT's judgment and reinstating the WTM's finding of insider trading against the respondents. The Court affirmed the disgorgement of ₹1.38 crores in averted losses and penalties under Regulation 9(1) of the PIT Regulations 2015, while reducing the Section 15G penalty for Respondent No.1 to ₹10 Lakhs. This ruling reinforces the stringent nature of the 2015 SEBI PIT Regulations, making it unequivocally clear that the motive behind a trade is irrelevant when an insider possesses UPSI, marking a stricter enforcement regime compared to its predecessor regulations.

Date of Decision: August 11, 2026