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The Insider's Edge: Addressing Legal Gaps in Insider Trading under the Companies Act, 2013

Author(s) Prachi Jain
Country India
Abstract Insider trading is an act of disclosing trade securities using non-public, price-sensitive information of a company. It is considered a profit-motivating tool with ethical apathy. Renowned thinkers John Locke and Adam Smith contributed to the development of the concept of insider trading as a ‘negative trade’. Insider trading is recognised as an illegal practice on the global platform, and that has led to legislative efforts on behalf of various countries. As a regulation in India, SEBI enacted the SEBI (Insider Trading) Regulations in the year 1992 and has undergone several amendments. A landmark case, Hindustan Lever Limited v. SEBI, resulted in the inclusion of the term ‘unpublished price sensitive information’ (UPSI) in the regulation. Section 188 of the Companies Act 2013 aims to prevent the misuse of unpublished price-sensitive information for personal gain. However, the scope of Section 188 is limited in nature, leaving a large portion of insider trading activities unregulated under the provision.
The paper aims to determine the legislative loopholes in combating insider trading and persistent agency conflicts in public companies. It critically reviews the loopholes in the insider trading law of India, including ambiguous definitions, enforcement challenges, and the burden of proof required for prosecution. Reviews landmark judgements and the regulatory framework highlight the shortcomings of the present legislative framework. Drawing a comparison of the best from the international regulatory framework of the United States and the European Union suggests reform to the Indian legislative framework for insider trading. Overall, it advocates legislative reform to stringent regulation against insider trading dealing in India to preclude market integrity.
Keywords Insider Trading, Corporate Governance, SEBI Regulations, Market Integrity, Agency Problem, Fiduciary Duty.
Published In Volume 16, Issue 6, Array 2025
Published On 2025-06-09
Cite This The Insider's Edge: Addressing Legal Gaps in Insider Trading under the Companies Act, 2013 - Prachi Jain - IJTAS Volume 16, Issue 6, Array 2025.
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