The article ‘Important Case Laws related to Securities and Investment Laws’ is a comprehensive study of the role of securities law in order to protect investors from abuses by company insiders and professionals. Through the case laws, the author analyzes SEBI's effort to exert control over insiders' trading behaviour.

The article ‘Important Case Laws related to Securities and Investment Laws’ is a comprehensive study of the role of securities law in order to protect investors from abuses by company insiders and professionals. Through the case laws, the author analyzes SEBI's effort to exert control over insiders' trading behaviour.IntroductionAny insider with extensive knowledge of the company's operations may be privy to price-sensitive information regarding the company's performance that...

The article ‘Important Case Laws related to Securities and Investment Laws’ is a comprehensive study of the role of securities law in order to protect investors from abuses by company insiders and professionals. Through the case laws, the author analyzes SEBI's effort to exert control over insiders' trading behaviour.


Any insider with extensive knowledge of the company's operations may be privy to price-sensitive information regarding the company's performance that could significantly affect the movement of its equity price. Such an insider may use the information asymmetry to his personal benefit, harming investors who do not have access to such "inside" information in order to profit and avoid losses in the stock market. Trading on knowledge gained while carrying out insider responsibilities is not permissible, as it is a breach of the fiduciary duty.

Therefore, the primary goal of enacting regulations against insider trading is to protect the interests of all stock market investors and ensure that everyone has access to any information that is available to an active participant in the market. To do this, the SEBI makes an effort to exert control over insiders' trading behaviour.

The numerous financial market-related offences that surfaced after liberalisation had no legal response until late 1992. As a result, the Securities and Exchange Board of India Act of 1992, also known as the "SEBI Act," was passed, making insider trading illegal and giving the Securities and Exchange Board of India (also known as "SEBI") the power to look into claims of insider trading. Insider trading is expressly forbidden under SEBI Act Sections 12A(d) and 12A(e). The SEBI (Insider Trading) Regulations, which outlawed the practice of insider trading, were additionally adopted by the SEBI in 1992. However, the prosecution for the violations of the aforementioned Regulations was incredibly inadequate.

This served as the foundation for the radically revised and renamed SEBI (Prohibition of Insider Trading) Regulations, 1992, which were passed by the SEBI on May 14, 2001, along with the final recommendations of the SEBI Insider Group, led by Mr Kumarmangalam Birla. The SEBI (Prohibition of Insider Trading) Regulations, 2015 (hence, "SEBI Regulations"), which are set to take effect in May 2015, have since superseded the two-decade-old framework.

The SEBI Regulations were created with the intention of preventing insider trading that would enrich the insider unjustifiably and harm genuine shareholders. By requiring disclosures, these regulations, which apply to listed businesses or those that are looking to list on a stock market, aim to increase security transaction transparency. They also set minimum requirements to avoid insider trading.

1. Tata Sons v. NTT[1]

In the year 2009, Tata Sons Limited (Tata) and Tata Teleservices Ltd. (TTSL) entered into a Shareholder Agreement ("SHA") with NTT Docomo Inc. (Docomo).The case centres on the Tata Group's failure to uphold a 2009 agreement between Tata and DoCoMo.  According to the agreement, Tatas would pay at least half of the acquisition costs to repurchase DoCoMo's shares in Tata Teleservices after five years. Tata Sons, however, declined to repurchase the shares at the agreed-upon pricing when DoCoMo made the decision to leave the Indian market in 2014.

Tata Sons refused because the RBI objected to the transaction being committed at a pre-fixed price between 2009 and 2014 due to a change in regulations. Tata was asked by DoCoMo to buy back shares at a price of $1.2 billion, but the Tatas provided a lower exit price. In addition to suing Tata Sons in the Delhi High Court, DoCoMo filed lawsuits against the company in the US and the UK.

Additionally, DoCoMo submitted a second enforcement request to the Delhi High Court. The Indian Contract Act, 1872 was not violated by the consent agreements between TTSL and Docomo, according to the court's ruling. The court also believed that failure to uphold a legal contract with a foreign party would harm the nation's reputation abroad, which would harm foreign direct investment and cross-border trade.

Further, it was held that FEMA does not explicitly forbid contractual obligations. As a result, the applicable Agreement clause might be carried out with just RBI's general consent. The Court determined that Tata could have legitimately carried out its duty to locate a buyer at any cost, including one that was higher than the shares' market value. Furthermore, it was decided that the award is for contract breach damages rather than for the purchase of shares abroad. The Court determined that no share purchases were being made, hence the need for RBI approval was not an issue.

On April 28, 2017, the Court ordered the enforcement of the arbitral award, granted them permission to take all necessary actions and provide all necessary documentation for the remittance of funds, after deducting any applicable taxes, and ordered the transfer of Docomo's shares in Tata Teleservices Limited to Tata. Any party was free to apply to the court if they were having trouble following the instructions. Docomo was asked to withdraw any more proceedings of a similar nature, pending Tata's fulfilment of its obligations.

2. Rakesh Agarwal v. SEBI[2]

A contract was struck in 1996 by Rakesh Agrawal, managing director of ABS Industries Ltd., and German company Bayer AG, which committed to buying 51% of ABS Industries Ltd. The accused liquidated a sizeable amount of his ABS Industries stock after UPSI announced the acquisition. He owned ABS Industries through his brother-in-law, Mr I. P. Kedia. Given that Mr Kedia was a well-connected person, SEBI determined that Mr Rakesh Agrawal had engaged in insider trading and ordered him to deposit Rs. 34 lakhs with the Investor Protection Funds of the Mumbai Stock Exchange and the New York Stock Exchange (in an equal amount, i.e. Rs. 17 lakhs in each exchange) to cover any investors who might later file a claim.

On appeal to the Securities Appellate Tribunal (SAT), it was determined that Mr Agrawal was not guilty of insider trading even if he had traded securities while in possession of UPSI because his actions were in the best interests of the company (as Bayer AG was unwilling to acquire the company unless it could obtain at least 51% of the shares) and there was no intention to profit. Furthermore, SAT concluded that it must be established that an insider received an undue advantage from the deal in order to punish them for breaking the Regulations.

The tribunal also rejected SEBI's claim that insider trading law is based on the principle of "disclose or abstain" and that a person who has UPSI is not permitted to trade in the shares of a company until he discloses the UPSI. The panel stated that "taking into consideration the basic goal of the SEBI Regulations forbidding insider trading, the intention/motivation of the insider needs to be taken notice of," after reviewing the entire jurisprudence on the requirement of Mens Rea under Indian law. It is true that mens rea is not included in the regulation as a component of insider trading. However, that does not imply that the reason should be disregarded.”

3. Dirks v. USA[3]

In 1973, Raymond Dirks served as an executive of a New York-based corporation that specialised in offering institutional investors investment analysis of insurance company assets. He learned on March 6 from an inside source that Equity Funding of America, a company that mostly sells life insurance and mutual funds, had greatly exaggerated its assets due to dishonest corporate policies.

Despite not doing business with Equity Funding, Dirks decided to look into the company. While doing so, he spoke with investors who did own Equity Funding stock about his findings. Based on the facts Dirks provided, several of these people sold their stock. Dirks also pushed the Wall Street Journal to run an article on the alleged scam, but it declined out of concern that it would be seen as defamatory. The New York Stock Exchange suspended trading on March 27 due to the decline in Equity Funding's share price, and the Securities and Exchange Commission (SEC) launched an investigation.

Following the publication of a Wall Street Journal article on April 2 that was heavily informed by Dirks' material, the SEC started looking into Dirks' involvement in the scandal. The Securities and Exchange Commission (SEC) concluded after looking into Dirks' conduct that by telling other members of the investment community about the fraud charges, he had assisted and abetted violations of the Securities Act of 1933 and the Securities Exchange Act of 1934. However, Dirks received merely a censure because he helped reveal the deception.

In response to Dirks' appeal, the U.S. Court of Appeals for the District of Columbia Circuit upheld the SEC's judgement. The question is whether the Petitioner's disclosure of significant non-public information to clients and investors violated Section 10 (b). The United States Supreme Court ruled that Section 10 (b) should not be interpreted broadly enough to subject tippers to liability for using inside information obtained from insiders who did not violate their fiduciary obligations in disclosing it. 

4. SBP & Co. v. Patel Engineering Limited[4]

Popularly known as Golden Engineering Case was a verdict passed by a seven-judge bench of the Hon’ble Supreme Court on Section 11 (6) of the Arbitration and Conciliation Act, of 1996. In the aforementioned Section, which deals with the appointment of arbitrators, it is stated that, in the event that the parties cannot agree on an arbitrator, the two arbitrators appointed by each party cannot agree on a third arbitrator, or an arbitral institution cannot complete the process of appointing an arbitrator, the Chief Justice or any other person or institution that he has designated may, at the request of the parties to the dispute. Since the Arbitration and Conciliation Act was passed, there has been an ongoing discussion within the Indian judiciary about whether the authority granted by the aforementioned section is judicial or administrative in character.

The supreme court overruled its previous decision and ruled that the authority stated in Section 11(6) is of a judicial nature. This court's decision has drawn harsh criticism and has been used as an illustration of judicial overreach. Being judicial in character, the appointment of power provided the court with the right to not only select an arbitrator but also to review the arbitration's procedure, the legality of the arbitral agreement, the necessity of arbitration in the case, and other related issues. This decision opened the door for the judiciary to get involved in the arbitration process. In addition, the Supreme Court ruled that judicial authority cannot be transferred; as a result, the phrase "any person or institution designated by him" can only refer to a judge of the Supreme Court or High Court who is not the chief justice in question.

The UNCITRAL Model Legislation, which indicates that national laws should work to restrict the degree of judicial intervention in alternative dispute resolution (ADR) systems of justice delivery, has proven to be in conflict with this judgement. The judiciary has also failed to uphold the intent of the law, which obviously does not intend for it to be read in this way.

Additionally, the judgement contains an instance of judicial overreach because it is the responsibility of the judiciary to interpret the laws and not make laws. However, the Supreme Court created new terminology while interpreting Section 11(6) by defining "any person or institution identified by him" as "by Chief Justice of High Court to a Judge of High Court and by Supreme Court to a Judge of Supreme Court." Thus, the case has demonstrated that it was an unwarranted interruption of the arbitral process that enlarged the range of judicial interference in the arbitration process in violation of the ADR Mechanism's original intent.

5. City Cruise Holding v. Unitech[5]

The parties had entered into a joint venture involving a Central Asian oil field, in which the claimants owned a 15% stake. There was a disagreement between the parties, and the Claimants commenced an arbitration procedure. The High Court proceedings coincided with the conclusion of the arbitration's evidence hearing, which was held in New York at the time. It was unclear whether certain bonus payments made to the arbitration by the First and Second Defendants might be subtracted from the amount the Claimants sought in the arbitration. The assistant general counsel in charge of drafting and negotiating the contracts testified before the arbitral tribunal, but the claimants asked E, a non-party to the arbitration and the lead commercial negotiator who had worked on the bonus payment in question, to give testimony. E is a non-party to the arbitration. E was a non-party to the arbitration. The tribunal gave the claimants permission to file a request in England, where E had his residence, for the taking of his testimony.

Under section 44 of the English Arbitration Act, parties may request court support for arbitration that is held inside or outside of England & Wales. The court has broad authority under this section, including the ability to order the testimony of witnesses, the preservation of evidence, the issuance of an interim restraining order or the designation of a receiver, the sale of any goods involved in the proceedings, and the ability to issue a number of other orders pertaining to real estate involved in the proceedings. The Court stated that the claim made by the Claimants that orders might be issued against non-parties was first "somewhat supported" by the language of s44. The law made it clear in s44(1) that the court had the same authority over the specific topics named therein as it would have had it been involved in court proceedings. This seemed to imply that the Court had the same authority to issue orders regarding non-party arbitrators as it did regarding non-party litigants.

Additionally, it was noted that the specific legislative provision pertinent to this case mentioned "the taking of evidence of witnesses," which could be interpreted as a sign that the provision was primarily focused on obtaining testimony from witnesses who were not under the control of the parties to the arbitration. This case has established that, regardless of whether service of the application outside of the jurisdiction is required, the English courts' authority to assist arbitration under Section 44 of the Act does not extend to orders against non-parties to the arbitration. As a result, the current stance is that s44 orders cannot be used against third parties who are not parties to the arbitration, even if those parties are based in England & Wales. The Court of Appeal is receiving an appeal about the ruling.

6. Vijay Karia v. Priysiman[6]

In the current case, Respondents filed a claim for arbitration against Appellants under the London Court of International Arbitration Rules (2014), alleging a significant breach of contractual commitments. In response, the Appellants brought forth a number of counterclaims against the Respondents. Three partial awards on the jurisdiction, substantial breaches, and counterclaims brought forth by the appellant were made by the arbitrator. The final award was then approved in April 2017. The Appellant's jurisdictional, material breach, and counterclaim claims were the subject of three partial awards from the arbitrator. Then, in April 2017, the decision was made.

Even though the Appellants had the option to do so, the four awards in question were not challenged in England's courts. These awards were first contested while they were attempting to be enforced in the High Court of Bombay. On the other hand, the High Court of Bombay dismissed the appeal, observing that none of the defences raised to block the enforcement of the verdicts fell under the narrow exclusions provided in Section 48 of the Arbitration and Conciliation Act, 1996. ("Arbitration Act"). Following that, the Appellants petitioned the Supreme Court for special leave in accordance with Article 136 of the Indian Constitution.

After considering the evidence and arguments, the Supreme Court upheld the verdict of the sole arbitrator and dismissed the expensive appeals. According to the Court, Article 136's constitutional power is very constrained. Additionally, under the "pro-enforcement bias" of the New York Convention, which was established in Section 48 of the Arbitration Act of 1996, the burden of proof has shifted from those seeking enforcement to those opposing enforcement. The Vijay Karia decision amply demonstrates how Indian law has advanced on the issue of foreign arbitral judgements being enforced under the Act after the initial failures of the earlier examples.

7. Hindustan Unilever v. SEBI[7]

Two weeks before the merger of two companies, namely Hindustan Lever Ltd. (HLL) and Brook Bond Lipton India Ltd. (BBLIL), was made public, HLL purchased 8 lakh shares of BBLIL from Public Investment Institution- Unit Trust of India (UTI). When SEBI suspected insider trading, it sent a "Show Cause Notice" (SCN) to the then-chairman of HLL, the chairman, all executive directors, and the company secretary. HLL and BBLIL were owned by London-based Unilever, which also served as its management.

Because HLL and its directors were aware of the combination in advance, SEBI ruled that they were insiders. In addition, SEBI found that UPSI had HLL in its possession in accordance with Section 2(k) of the 1992 Regulations, which covered information about mergers, takeovers, and amalgamations that was "not generally known or published by such company for general information, but which, if published or known, is likely to substantially impact the price of securities of that company in the market."

SAT had to decide whether HLL was an insider and whether the knowledge she possessed qualified as UPSI. This decision of the SAT led to an amendment in the definition of “unpublished” under Section 2(k) which stated, “unpublished” means information which is not published by the company or its agents and is not specific in nature.”

By the same amendment, SEBI also included a new section, Section 2(ha), that expanded the definition of "price sensitive information" to encompass any information relevant to an amalgamation, merger, or takeover, regardless of whether such information actually affects the market price of the securities. The 2015 regulations finally defined what constitutes UPSI by stating "generally available information" under Section 2(1)(e), which stated, "generally available information" means information that is accessible to the public on a nondiscriminatory basis; however, the amendments did not definitively and expressly define "generally available information”.

8. US v. Newman[8]

Successful hedge fund managers Chiasson and Newman traded in technology stocks. Both well-known New York hedge funds—Chiasson co-founded Level Global Investors, and Newman worked as a portfolio manager at Diamondback Capital—are owned by Chiasson. The FBI carried out search warrants at both hedge funds on November 22, 2010. Despite the fact that neither Chiasson nor Newman were detained at the time, their hedge funds suffered severe financial and reputational damage, and by the end of 2012, both had closed. Chiasson and Newman were detained on January 18, 2012, on suspicion of trading Dell and Nvidia shares based on substantial non-public information obtained from insiders at both companies.

In one of the greatest insider trading prosecutions to date, their hedge funds were allegedly responsible for $72 million in illegal profits. Both Chiasson and Newman continued on to trial. The jury found Chiasson and Newman guilty of several charges of securities fraud following a six-day trial and two-day deliberation period. Chiasson and Newman received prison terms of 6 ½ years and 4 ½ years respectively.

Evidence presented at the trial established that Chiasson and Newman both traded on tips from insiders at Dell and Nvidia; the tips were passed on to them by their respective analysts, placing Chiasson and Newman several levels removed from the original tippers. The Dell tip was given to Sandy Goyal, an analyst at another investment management, who then gave it to Jesse Tortora, an analyst at Diamondback, by a member of Dell's investor relations team. Sandy Goyal received the information from Jesse Tortora.

Tortora then informed his portfolio manager Newman, as well as additional analysts like Sam Adondakis at Level Global, of the material. Adondakis then informed Chiasson of the details. As a result, Newman and Chiasson were three and four layers above the original Dell insider, respectively. An employee at Nvidia's finance division provided information about the company's results to a social acquaintance from church, who then passed it on to Whittier Trust analyst Danny Kuo. The material was then leaked by Kuo to a number of experts, including Tortora and Adondakis, who then told Newman and Chiasson about it. The original Nvidia tipper was thus four layers below Newman and Chiasson.

According to the Second Circuit, the Government must demonstrate that remote tippees knew that the trading was based on significant nonpublic information and that the tippees received a personal advantage from the tip. This clarification nevertheless raises the bar for this relatively new development in remote-tippee prosecutions, even if the Second Circuit left open the prospect of fulfilling this threshold with evidence that the remote-tipper willfully avoided learning of the personal gain. The indictments against Anthony Chiasson and Todd Newman, two well-known defendants in insider trading cases, were dismissed with prejudice by the United States Court of Appeals for the Second Circuit, which also overturned their convictions. The Second Circuit reversed their convictions, clarifying the high standard of proof required to convict downstream tippees who are several levels removed from the initial tipster and bringing back the "personal advantage" standard to determine whether a tipper has violated a fiduciary obligation. The Second Circuit's criminal and civil insider trading cases will undoubtedly be significantly impacted by this decision.

9. Reliance Ind. Ltd. v. SEBI[9]

In this instance, the moot issue relates to several stock transactions made by RIL in 1994 that involved the "fraudulent assignment of equity shares to promoters and group entities." Reliance had asked SEBI for access to a number of internal papers, including the opinions of a chartered accountant and former SC judge, Justice BN Srikrishna. RIL petitioned the Bombay High Court for a writ after SEBI rejected its request (Bombay HC). 2019 saw the dismissal of this. RIL was the subject of a criminal case from SEBI for violating the SEBI Act and other laws before the Special Judge in Mumbai. After the complaint was dismissed, a revision appeal was submitted to the Bombay High Court. On March 28, 2022, Reliance submitted an interlocutory application asking for the disclosure of the aforementioned papers. This application was postponed by the Bombay High Court because it might be reviewed with the primary revision petition. In light of this, a special leave petition was submitted to the SC.

Since SEBI is a regulator, the SC said that it has a responsibility to act fairly when conducting its hearings or taking any action against parties. Because SEBI is a quasi-judicial organisation by nature, it is obligated under the constitution to act fairly and in accordance with the law, regulator has a responsibility to address problems rather than devise ways to circumvent the law in order to secure successful convictions. The principles of natural justice, which state that a party must be given a reasonable opportunity to present their case, are significantly and inextricably linked to this responsibility. The SEBI's reluctance to release these papers prompts questions about the trial's fairness and openness.

These actions taint the proceedings with bias and partiality. Opaqueness, according to the SC, is incompatible with "transparency." Institutions in a nation with a strong legal system are required to enact policies that support the "democratic values" of accountability and transparency. Another important aspect of this judgment was that the SC added a word of caution against initiating frivolous criminal litigation against large corporations. The SC held that initiation of such criminal proceedings in commercial matters must be done after a lot of circumspection, and the courts must act as "gatekeepers" in such matters. The reasoning given by the SC behind this word of caution was that such criminal actions would lead to adverse economic consequences for the nation over a more extended period. Hence, the regulator must exercise caution before initiating such actions.

10. Chiarella v. USA[10]

Another significant part of this ruling was the SC's addition of a warning against bringing baseless criminal cases against major firms. According to the SC, such criminal proceedings in commercial concerns must be started with great caution, and the courts must serve as "gatekeepers" in these situations. This warning was issued by the SC with the justification that such criminal activity would have long-term negative economic effects on the country.

Consequently, the regulator must take care before taking such action. Chiarella and the SEC went into a consent decree in which he consented to pay the share seller's earnings back. A few months later, Chiarella was charged with 17 counts of breaching SEC Rule 10b-5 and Section 10(b) of the Securities Exchange Act of 1934 (the 1934 Act). The use of "any manipulative or deceptive device or artifice in connection with the acquisition or sale of any security" is prohibited by Section 10(b) of the 1934 Act, as well as any other rules and regulations that the [SEC] may impose. Any person who "employs any device, scheme, or artifice to cheat in connection with the purchase or sale of any security" is prohibited under Rule 10b-5, which was established under Section 10(b). Chiarella was convicted at trial and the Court of Appeals for the Second Circuit affirmed his conviction.

Chiarella was accused of breaking the 1934 Act's Section 10(b) by not disclosing the anticipated takeover before trading in the target company's stock. According to the court, there must be a relationship of trust and confidence between the parties to a transaction for there to be a responsibility to disclose information. Chiarella lacked this obligation. He did not have access to sensitive information from the target company and was not a corporate insider in the purchasing corporation. Additionally, he had no fiduciary duty to the target company's stockholders because they didn't use him as their agent, didn't have any faith in him, and hadn't done business with him before. A duty to disclose under Section 10(b) does not arise from the mere possession of non-public market information.

11. Mistry v. Tata Sons[11]

Tata Sons and Ratan Tata filed a petition with the Supreme Court in January 2020, contesting the NCLAT's ruling. The Supreme Court issued its ruling on March 26, 2021. A Supreme Court panel led by Chief Justice S.A. Bobde and including Justices V. Ramasubramanian and A.S. Bopanna delivered the ruling. The bench ruled in favour of the Tata Group and rejected all claims of persecution and poor management brought by Mr Cryus Mistry's corporations against Tata Sons Limited. After carefully examining the claims, the NCLT decided in favour of TATA Sons, finding no evidence of wrongdoing in Mr Cryus Mistry's removal from the Chairmanship and Directorship.

When the NCLT's decision was challenged before the NCLAT, the Appellate Tribunal decided against the TATA Sons and ruled that Mr Cryus Mistry must be reinstated for the remainder of his term and that the resolution for removal was unlawful. The Appellate Tribunal did not examine any of the five allegations regarding the TATA Sons' business decisions and only addressed the removal of Mr Cryus Mistry. As a result, the Supreme Court only addressed the matter raised in the NCLAT appeal, namely the validity of Mr Cryus Mistry's removal. When debating this legal issue, the Supreme Court focused primarily on the validity of the NCLAT's decision to reinstate Mr Cryus Mistry.

It was decided that although Mr Cryus Mistry had not requested his reinstatement as a director or executive chairman of Tata Sons, the NCLAT had nonetheless ordered his reinstatement as executive chairman of Tata Sons and as a director of Tata Companies for the remainder of his term. The NCLAT's decision to reinstate Mr Cryus Mistry was made on December 18th, by which time his appointment as Executive Deputy Chairman of Tata Sons had already run its course for a period of five years, from April 1, 2012, to March 31, 2017. The Court ruled that the Company Law Tribunal cannot interfere with the removal of a person as a Chairman of a Company in a petition under Section 241 of the Companies Act, 2013, and is expressly prohibited from reinstating the person in a position held by him or her under Section 14 of that Act, unless the removal is oppressive, mishandled, or done in a way that harms the interests of the company, its members, or the general public.

The Court overturned the NCLAT's reinstatement remedy after finding that Sections 241 and 242 of the 2013 Companies Act do not expressly grant the right to do so. The conditions listed under Section 14(1) for conversion from Public to Private or vice versa became meaningless because TATA Sons, by necessity and not by choice, became a Public Company on February 1, 1975, under Section 43-A, and remained one from December 13, 2000, until September 11, 2013, under Section 3(1)(iii)(d). Given the foregoing, the Court came to the conclusion that TATA Sons had every right to act as it did with regard to its standing.

12. Sahara Case[12]

By filing under the Businesses Act of 1956, Sahara formed two companies in 2005: Sahara Indian Real Estate Corporation Limited (SIRECL) and Sahara Housing Investment Corporation (SHIC). Private placement of optionally fully convertible debentures was used to raise the cash (OFCD). Over the course of three years, both businesses raised a total of rupees 24,029.73 crores from 30 million investors. When Sahara Prime City's red herring prospectus was submitted to SEBI for clearance in 2009, SEBI saw unusual fund-raising activity in the two entities, SHICL and SIRCL. A guy by the name of Roshan Lal also filed a complaint with SEBI, alleging that SHICL and SIRCL issued OFCDs through the use of unlawful means. In response, SEBI opened an inquiry into Sahara India, looking into the fund-raising activities of SHICL and SIRCL as well as investor data.

Following Sahara's adamant refusal to comply, SEBI issued an interim order finding that the issuance of OFCDs was unlawful and directing SHICL and SIRCL to refund the investors' money with interest. Sahara then submitted a court appeal asking for the ruling to be suspended. The stay order was subsequently overturned and a final order was issued by SEBI because Sahara was uncooperative with the authorities. The order was approved by the Securities Appellate Tribunal (SAT). After that Sahara filed a plea against the SEBI order in the Supreme court questioning their jurisdiction in the matter and alleging a defamatory agenda on part of SEBI to destroy the market reputation of Sahara.

It was held that SEBI has the power to investigate and adjudicate in this matter. section 55A of the Companies act 1956, delegates special powers to SEBI in the matter of the issue, allotment and transfer of securities. It was further held that although the OFCDs issued by the two companies are in the nature of the hybrid instrument, it does not cease to be a security within the meaning of the companies act, SEBI and SCRA. As in this case such OFCDs were offered to millions of people so there is no question about the marketability of such instruments. And the name itself contains ‘debenture’, it is deemed to be a security as per the provisions of the companies act, SEBI and SCRA.

13. MCX Stock Exchange v. NSE[13]

According to the MCX, NSE is breaking the Competition Act of 2002's sections 3 and 4. NSE is a party to an anti-competitive pact, MCX informed CCI. Additionally, NSE is eradicating rivals by taking advantage of its market dominance. The act is broken by a fee waiver for a year. The goal of the low deposit level requirement in the CD market was to drive out competitors. The NSE declined to give the FTIL the APIC of the CD category. And as a result, users of ODIN disable their ability to connect to the NSE CD sector.

There were no entrance fees for CD sector membership in the NSE. To assess the relevant market in this case, the Competition Commission of India (CCI) relied on the report provided by the Internal Working Group of the RBI. The report mentioned that the CD segment has no similarity with other segments. After examining the material, CCI discovered that the CD segment is distinct from the equity and currency markets. Additionally, there are variations in supporting assets, which causes variations in associated derivatives.

A product from the equity or F & O segments, for example, cannot be used to replace or swap a product from the CD segment when making a purchase. Following the study, the CCI came to the opinion that the CD sector service in the stock market is unquestionably a separate and significant market. The Commission came to the judgement that NSE holds the market's dominant position. According to Section 4 read with Section 19(4) of the Act, the NSE has a dominant position in the relevant market. NSE has INR 18.4 million in reserve surplus, and NSE is abusing its dominant position. CCI held that NSE is using its position of strength in the non-CD segment to protect its position in the CD segment.

NSE appealed the CCI ruling to the COMPAT (Competition Appellate Tribunal). The National Stock Exchange of India (NSE) was found guilty of misusing its dominant position by the COMPAT. The NSE has exploited its power in the market for currency derivatives. The CCI's order from June 2011 has been affirmed by the COMPAT. The NSE's appeal against the CCI decision was denied by the COMPAT order. NSE then filed a petition with the Supreme Court, which is still pending. The Supreme Court put a hold on the penalty ruling against NSE on September 23, 2014. The COMPAT affirmed the CCI's decision to impose a fine of INR 55.5 core. The Supreme Court stayed the penalty order imposed by COMPAT. The NSE was fined for allegedly following unfair pricing policies with regard to currency derivatives. A bench of Justice J. Chelameswar and A.K. Sikri also asked CCI to respond to NSE's appeal against COMPAT.

14. Brickwork v. Crisil[14]

The Competition Commission of India (CCI) dismissed a complaint alleging that Crisil Ltd, India Ratings and Research Pvt Ltd, Care Ratings Ltd and Icra Ltd indulged in unfair business practices. A complaint by Brickwork Ratings India Pvt Ltd. led to the decision. The informant, Brickwork Ratings, claimed that Crisil, India Ratings and Research, Care Ratings, and Icra had violated the terms of the Competition Act through collusive bidding, bid rigging, and predatory pricing at below-cost levels. According to CCI, Brickwork Ratings alleged that the credit rating agencies were engaging in anti-competitive behaviour in violation of the Competition Act, which was having a materially negative impact on both the competition in India and the Indian economy. Brickwork Ratings requested that "investigations regarding the formation of cartel and collusive bids by the opposite parties in the tender processes of several PSUs" be conducted by the Commission.

It claimed that credit rating companies cartelized and quoted identical/similar rates in a 2019–20 tender invited by the National Highways Authority of India (NHAI) to grade its planned Rs 75,000 crore bond issuances. The quotes, in the informant's opinion, demonstrated pricing parallelism between the opposing parties. Brickwork Ratings said that quotes from competing firms showed indications of bid manipulation amongst themselves in relation to tenders issued by numerous other public sector enterprises (PSUs).

The Commission determined that there is "no prima facie case" of a violation of the Competition Act's provisions after considering the submissions from various parties. CCI noted that there are certain other allegations about the opposite parties indulging in mala fide and illegal conduct. CCI also held that “In the opinion of the Commission, such allegations made by the informant are too broad and general in nature and do not raise any competition concern”.


In order to tighten the oversight of insider trading regulations, SEBI still has a long way to go. For example, due to a lack of technological knowledge, it is exceedingly challenging for SEBI to apprehend the offender. Insider trading allegations are difficult to demonstrate even if SEBI is successful in locating the culprit because these accusations are sometimes based on circumstantial evidence, making them difficult to prove. SEBI lacks the legal right or legal ability to tap phones. Existing Indian laws provide a problem in that they do not have extraterritorial application. Any foreign national who violates insider trading laws is exempt from investigation and punishment under the law.

There are also occasions where certain evidence is located outside of India even if an investigation has been launched there. Furthermore, there is no system in place for obtaining international aid or support in this area. The potential of receiving a consent order presents another difficulty. Small fines in insider trading instances give the impression that insider trading is not a severe crime. To prevent insider trading from becoming commonplace, it must be understood that this is not the case.


[1] 2017 SCC OnLine Del 8078.

[2] (2004) 49 SCL 351 (SAT).

[3] 681 F.2d 824, 220 U.S. App. D.C. 309, Fed. Sec. L. Rep. (CCH) P98,669 (D.C. Cir. May 18, 1982).

[4] 8 SCC 618: AIR 2oo6 SC 450.

[5] [2014] EWHC 3704 (Comm).

[6] 2020 SCC OnLine SC 177.

[7] 1998 (18) SCL 311 (AA).

[8] 773 F. 3d 438 (2d Cir. 2014).

[9] Criminal Appeal No. 1167 of 2022; Special Leave Petition (Crl) No. 3417/2022.

[10] 445 US 222 (1980).

[11] 2019 SCC OnLine NCLAT 858.

[12] C.A. No. 9813 of 2011 and C.A. No. 9833 of 2011, AIR 2014 SC 3241.

[13] CCI, Case No. 13/2009.

[14] CCI, Case No. 47 of 2019.

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Vanshika Malhotra

Vanshika Malhotra

I am a hard-working and motivated law fresher with a firm determination to produce exceptional results, be it individually or in a team. I am currently gaining post-qualification experience in IPR. Along with that, I am also an aspiring NCA candidate.

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