Vamsi Krishna, Tamil Nadu National Law University
Introduction:
As per Insider Trading Regulations in India, the prohibition of insider trading must extend beyond the insider involved. This would ensure an overall protection from insider trading in the market. If not ensured, the insider could then spread the UPSI to his friends/relatives or even sell it to traders willing to purchase it. Here, the insider passing UPSI is referred to as a ‘tipper’ & the recipient of the said UPSI is referred to as a ‘tippee’.
This study is predicated on a scenario where a Tippee utilises UPSI to trade securities but is not not aware of the non-public and price sensitive nature of the said information. Also, what steps ought to be taken to evaluate if a tippee had the requisite mental element. It needs to be noted that there has not been any semblance of consistency with respect to the host of decisions rendered by SEBI.
In Shruti Vora v. SEBI and Manappuram Finance1, SEBI recognised the defence of ‘Innocent Tippee’ in the former while not ascribing such a defence in the latter. In addition, in CRISIL Limited2 and Deep Industries3, despite the lack of intention, SEBI convicted tippees of Insider Trading solely based on the connection that the tippees are related to the tippers. In CRISIL Limited, tippees were convicted despite the lack of evidence as to the passing UPSI from tipper to tippee. Therefore, it can be noted that ‘state of mind’ being a prerequisite wasn’t consistently taken into consideration.
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