Securities and Exchange Board of India: In a case involving insider trading allegations against senior executives of IndusInd Bank Limited, Kamlesh C. Varshney, (Whole Time Member) passed an ex-parte interim order after noting that the said executives traded in the scrip of the Bank while in possession of unpublished price sensitive information (UPSI) relating to financial discrepancies arising out of derivative accounting and held that their trades were in prima facie violation of the SEBI Act, 1992 and SEBI (Prohibition of Insider Trading) Regulations, 2015 (PIT Regulations, 2015).
The Securities and Exchange Board of India (SEBI) initiated a suo-motu preliminary examination after a significant fall in the share price of IndusInd Bank Limited following an announcement made by the Bank on 10-03-2025. This announcement disclosed the identification of discrepancies in account balances of the derivative portfolio, pursuant to the implementation of the RBI’s Master Direction on classification and valuation of investments by commercial banks, effective from 01-04-2024. The bank had estimated an adverse financial impact of approximately ₹1,529.88 crores (2.35% of its net worth as of December 2024), which was to be validated by an external agency. This announcement led to a steep fall of over 27% in the bank’s share price in a single day.
Simultaneously, SEBI received complaints and media reports alleging insider trading by certain KMPs of the Bank. SEBI investigated whether the trades executed by these individuals violated the SEBI Act, 1992 and PIT Regulations. The RBI issued its Master Direction on 12-09-2023. Following this, IBL constituted an internal team by 26-09-2023, to review the derivative portfolio. The internal review revealed accounting discrepancies which were shared internally among senior management over a series of emails between November and December 2023. Notably:
- By 30-11-2023, a figure of ₹1,749.98 crores was circulated internally as the impact.
- On 04-12-2023, the MD & CEO (Sumant Kathpalia) acknowledged the significant impact via email, effectively marking the origin of UPSI (Unpublished Price Sensitive Information).
- Between December 11 and 17, 2023, further internal confirmations pegged the discrepancy at ₹1,572 crores.
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Despite this, the information was not classified as UPSI until 04-03-2025, and not disclosed to the stock exchanges until 10-03-2025.
During this UPSI period (04-12-2023 to 10-03-2025), five senior officers traded in the scrip of IBL, selling significant quantities of shares while in possession of this undisclosed material information.
SEBI identified the core issue, ie., whether the information relating to discrepancies in the derivative portfolio of IndusInd Bank qualified as unpublished price sensitive information (UPSI), and whether the trades executed by the Noticees during the existence of this UPSI amounted to insider trading. SEBI observed that the information concerning accounting discrepancies, discovered post the issuance of RBI’s Master Direction on derivative accounting, had originated internally within IBL as early as November 2023. Internal emails from the CFO and other senior executives, including the MD & CEO, showed discussions around significant financial impacts beginning in late November and culminating in a detailed acknowledgment of the issue by 04-12-2023. This marked the prima facie start of the UPSI period.
The information was clearly material, as the adverse financial impact was calculated at around ₹1,749.98 crores initially, and later finalized at ₹1,572 crores as of September 2023. Further, the gravity of the situation was confirmed by internal communications which acknowledged that such losses would affect key regulatory ratios like CET 1 (Common Equity Tier 1 Capital), and the bank’s disclosures to investors. These discussions proved that senior management knew the impact was serious and likely to affect share prices, satisfying the test of materiality under Regulation 2(1)(n) of the PIT Regulations.
Additionally, the information remained undisclosed to the public until 10-03-2025, when the bank finally made a post-market announcement on stock exchange platforms. Upon disclosure, the share price plummeted by 27.165% in a single trading session. SEBI emphasized that this drastic drop confirmed that the information was not only material but also price-sensitive. Thus, the three conditions of UPSI, i.e., relation to the company, non-availability to the public, and material impact on price were clearly fulfilled.
SEBI further observed that all five noticees were senior employees of the bank, including the MD & CEO, the Deputy CEO, and heads of key departments like Treasury and Operations. Their roles inherently granted them access to financial and regulatory information, establishing their status as “connected persons” and “insiders” under Regulation 2(1)(d) and 2(1)(g) of the PIT Regulations. Moreover, SEBI noted that these individuals were specifically included in emails discussing the discrepancies and were involved in the decision-making and validation process related to the same. They did not merely have passive knowledge but were active participants in monitoring, escalating, and reviewing the figures internally, and in discussions with the external auditor KPMG.
SEBI’s analysis of trade data revealed that all five noticees sold shares of IndusInd Bank during the UPSI period without making any fresh purchases. In aggregate, they sold over 4.78 lakh shares, thereby selling the highest (3.48 lakh shares). SEBI calculated the “loss avoided” based on the post-disclosure price drop and concluded that these trades allowed the insiders to avert a cumulative loss of approximately ₹19.78 crores. These trades were found to be deliberate and synchronized with the possession of UPSI. Notably, there was no evidence that any of the noticees had adopted a valid trading plan under Regulation 5 of the PIT Regulations, which could have provided a lawful shield.
SEBI critically observed that the UPSI was not classified or recorded in the Structured Digital Database (SDD) until 04-03-2025 more than 15 months after it had effectively originated. This failure in classification and timely disclosure suggested a systemic lapse in corporate governance and regulatory compliance. The regulator pointed out that several internal emails indicated plans to submit the figures to RBI and even external validation by KPMG by February 2024. Yet, these were neither made public nor classified as UPSI, despite their evident materiality.
SEBI remarked that insider trading not only distorts market fairness but also erodes public confidence in capital markets. SEBI reiterated that interim relief is crucial to prevent dissipation of illegal gains and to protect the integrity of the market. It concluded that the conduct of the Noticees represented a textbook case of insider trading in breach of Section 12A(d) and (e) of the SEBI Act, 1992 and Regulation 4(1) of the PIT Regulations.
Based on the facts and prima facie findings, SEBI held that the five Noticees, senior executives of IndusInd Bank were insiders within the meaning of the PIT Regulations and had traded in the scrip of IBL while in possession of UPSI. Their actions were in clear contravention of the SEBI Act and the PIT Regulations, specifically violating Section 12A(d) and (e) of the SEBI Act, 1992, and Regulation 4(1) of the PIT Regulations, 2015.
SEBI issued the following directions:
- Impounding of the averted loss amounts, totaling ₹19.78 crores, proportionately from each Noticee. They were directed to deposit the impounded amount into lien-marked fixed deposits in their names, which cannot be accessed without SEBI’s permission.
- A complete restraint on all five Noticees from buying, selling, or dealing in any securities, directly or indirectly, until further orders.
- Freezing of their bank and demat accounts, with debits permitted only to transfer the impounded funds into fixed deposits.
- A direction to the Registrar and Transfer Agents to freeze all mutual fund and securities holdings of the Noticees.
- A bar on disposal of any assets until the impounding amount is secured.
- An order requiring each Noticee to submit a full inventory of assets, movable or immovable, including bank and demat accounts, shareholdings, and investments, within 15 days.
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If the impounded amount is deposited in full, SEBI will consider partial relaxation of the market access ban (except for IBL securities).
[IN THE MATTER OF INSIDER TRADING BY CERTAIN ENTITIES IN THE SCRIP OF INDUSIND BANK LIMITED, WTM/KV/ISD/ISD-SEC-5/31437/2025-26, decided on 28-05-2025]
