Unauthorized Communication of UPSI:  Communicator Presumed Guilty?

Sandpapergate: ICC’s Failure to Save the Spirit of the Game from Orchestrated Cheating.

[Ankit Sharma]

Ankit Sharma is a 4th year student of B.Com.L.L.B (Hons.) at Gujarat National Law University.


Given the evidentiary problems in insider trading cases, SEBI has resorted to the use of presumptions in its enforcement of the SEBI (Prohibition of Insider Trading) Regulations[1]. Hence, if an insider trades in securities whilst in the possession of Unpublished Price Sensitive Information (‘UPSI’ hereinafter) there is a presumption of guilt against him. The law also prohibits the immediate insiders from communicating UPSI to anybody who is not an insider. The research note seeks to examine if there exists any such presumption against the immediate insider also that he communicated UPSI to a relative or a spouse etc. in instances where any relative or spouse or any other connected person commits insider trading


SEBI (Prohibition of Insider Trading) Regulations, 2015 prohibit insiders from trading[2] in securities that are listed or proposed to be listed on a stock exchange when in possession of unpublished price sensitive information[3]. ‘Insider’[4] is anybody who is in possession of or has access to unpublished price sensitive information or is either a connected person, which includes spouse[5]. ‘Unpublished price sensitive information’ means any information, relating to a company or its securities, directly or indirectly, that is not generally available which upon becoming generally available, is likely to materially affect the price of the securities[6].

The note appended to regulation 4(1) casts a rebuttable presumption of guilt on a person who has traded in securities, whilst in possession of unpublished price sensitive information (UPSI), that such trade was motivated by the knowledge and awareness of such information in his possession, thereby making him guilty of Insider Trading. Further, regulation 3 prohibits any insider from communicating any UPSI relating to a company or securities listed or proposed to be listed, to any person including other insiders except where such communication is in furtherance of legitimate purposes, performance of duties or discharge of legal obligations. Thus, in case where a person is an insider possessing UPSI and the spouse or relative of such person commits insider trading, there will be a presumption of guilt against such individual  who is trading on securities but there has to be undertaken an inquiry as to whether such presumption of guilt will exist against the immediate insider possessing UPSI also that he communicated the information to spouse or relative and thus acted in contravention of prohibition under regulation 3.

Though any express provision providing for such presumption under regulation 3 is absent, the existence of such presumption of guilt seems very natural and rational as the communication of UPSI by immediate insider is the only way that the spouse or any other connected person can garner such information. But be that as it may, such a presumption may not exist because of two cogent reasons.

  1. Presumption under Regulation 4 cannot be extended to                       Regulation 3.

SEBI (Prohibition of Insider Trading) Regulations, 2015 is a penal statute[7]. It is a general rule[8] of construction that the provisions of a statute enacting an offence or imposing a penalty are strictly construed[9] and not be enlarged by implication[10]. If the statute requires the accused to disprove even by preponderance of probabilities a presumed fact which an essential element of the offence as distinguished from a proviso or exception, the statute may offend a due process clause in a constitution to design fair trial[11] and the provision may be read down strictly[12]. In any case a deeming provision which reverses the onus of proof in relation to an element of the offence has to be strictly construed and cannot be extended beyond its language to cover another offence[13]. In the instant matter also, the onus of proof and presumption under Regulation 4 should be read as to cover only the cases envisaged by the aforementioned regulation i.e. where there has been trading transaction on the basis of UPSI and should not extend to the cases where the immediate insider has communicated to UPSI to any insider/non insider when such communication was not made in furtherance of legitimate purposes, performance of duties or discharge of legal obligations.

2.Such presumption in Regulation 3 was intentionally omitted by        legislature.

A statute is an edict of the Legislature[14]. The duty of judicature is to act upon the true intention of the Legislature—the mens or sententia legis”[15]. In the matrix at hand it can be reasonably presumed that the legislating authority never intended any such presumption against the communicator of UPSI under Regulation 3(1). According to the test laid down by Blackburn J. in R v. Cleworth[16], to determine what the correct presumption, arising from an omission in a statute should be, was whether what was omitted but sought to be brought within the legislative intention was “known” to the law makers, and could, therefore, be “supposed to have been omitted intentionally”[17]. To re-iterate, note appended to the regulation 4 unequivocally mentions that there will be a presumption against the trader that the transacted on the basis of UPSI if he did so while in the possession of UPSI. And hence it can be well deduced that the legislature was well aware that a presumption could be imposed in case of other offences also, or to be specific on the communicators of UPSI as envisaged in regulation 3(1). But the legislature chose to omit any such presumption in case of regulation 3(1) thereby satisfying the absence of any intention to treat the communicators of UPSI at par with the person who trades in securities while in possession of UPSI.


While it remains to be seen as to how judiciary clarifies the issue, the reasons suggesting the absence of presumption of guilt under Regulation 3 are highly persuasive and convincing. As a general rule of interpretation of penal statutes, presumptions are usually given a restricted effect and hence, a presumption under regulation 4 cannot be extended to regulation 3. Also, as the intention of legislature is supreme, the scheme of the regulations is clearly indicative that legislature didn’t aim to provide for any such presumption. Consequently, author holds the opinion that a person who acts in the contravention of regulation 3 cannot be presumed guilty.

[1] Presumption in Insider Trading, by Umakanth Varotill, https://indiacorplaw.in/2015/12/presumption-in-insider-trading.html [last accessed: 8th June 2016, 12:12 hrs]

[2] Reg. 2(1)(l), SEBI (Prohibition of Insider Trading) Regulations, 2015.

[3] Regulation 4, SEBI (Prohibition of Insider Trading) Regulations, 2015.

[4] 2(1)(g), SEBI (Prohibition of Insider Trading) Regulations, 2015.

[5] Reg 2(1)(d)(ii)(a) read with regulation  2(1)(f), SEBI (Prohibition of Insider Trading) Regulations, 2015.

[6] Reg 2(1)(n), SEBI (Prohibition of Insider Trading) Regulations, 2015.

[7] Rakesh Agarwal v. Securities Exchange Board of India, (2004) 1 CompLJ 193 SAT.

[8] Glaxo Laboratories v. The Presiding Officer, Labour Court Meerut & Ors., AIR 1984 SC 505.

[9] Iqbal Singh Marwah v. Meenakshi Marwah, AIR 2005 SC 2119.

[10] Kanwar Singh v. Delhi Administration, AIR 1965 SC 871.

[11] Vasaquez v. R., (1994) 3 AII ER 674.

[12] R v. Lambert, (2001) 3 AII ER 577.

[13] G.P. Singh, Interpretation of Statutes 503 (LexisNexis 2007).

[14] Vishnu Pratap Sugar Works (Private) Ltd. v. Chief Inspector of Stamp, AIR 1968 SC 102.

[15]South Asia Industries (Pvt.) Ltd. v. S. Sarup Singh, AIR 1966 SC 346.

[16] R. v. Cleworth, [1864] 4 BSS 927.

[17] Narayanaswami v. G. Pannerselvam & Ors., AIR 1972 SC 2284.