V.K Kaul vs. Adjudicating officer, SEBI (Case Comment)


Laws against insider trading primarily deal with matters where a connected person or an insider has communicated price sensitive information, based on which securities have been traded. The SEBI (Prohibition of Insider Trading) Regulations deals with offences of insider trading in India. It lays down definitions as well as the course of action in case a person indulges in the offence of insider trading. In this paper, we shall analyse the case of V.K Kaul vs. Adjudicating officer, SEBI[1]. We shall look at the two primary questions dealt with by the court in the case, namely, ‘who is an insider’ and ‘what can be termed as Unpublished Price Sensitive Information (UPSI)’.

This is an infamous case for the application of circumstantial evidence. Moreover, to establish the same, the court depended on the precedent set by the United States in a previous case. Even though there are quite a few differences in provisions of the US and that of India, yet, it is observed that the US laws have helped Indian laws on insider trading evolve. Therefore, while discussing the questions stated above, the paper also analyses them in the context of the US laws to understand their stance better. Further, this case came into being prior to 2015, therefore the analysis will be in accordance with the regulations pre 2015. 

Fact matrix of the case

In the present case, Ranbaxy was the parent company of Solrex Pharmaceuticals Limited (Solrex). It was further the holding company of Rexcel Pharmaceuticals (Rexcel) and Solus Pharmaceutical Limited (Solus). Solrex was the partnership firm between Rexcel and Solus. Therefore, Solrex was directly under the control of Ranbaxy. Further, Mr. V.K. Kaul was a non-executive independent director of the company Ranbaxy Laboratories Limited (Ranbaxy) from 1 January 2007. From 31 March 2008, large investments were made by Solrex in the target company, namely Orchid Chemicals and Pharmaceuticals Limited. On 27th and 28th March 2008, Mr. Bala Kaul had traded in the scrip of the target company by making large investments and buying 35000 shares at an average price of Rs. 131.71 per share and sold it at an average price of Rs. 219.94 on 10 April 2008.[2]

It was alleged that Mr. Kaul provided UPSI to his wife, based on which the investments were made her. The series of events that happened led to this allegation. On 20th March 2008, a resolution was passed by the board of directors of Rexcel and Solus to open a demat account on behalf of Solrex. This account was to be used to buy the shares of Orchid Chemicals and Pharmaceuticals Limited, the target company. Since neither of the companies had the financial strength to make such large investment, Ranbaxy provided the funding for the same. Subsequently, on 28th March 2008, the Board of directors of Ranbaxy authorized the funding through Mr. Malvinder Singh, the then CEO and Managing Director. Further, since the demat account was opened and the funding was made on the basis of the decision made by the board on 20th to purchase shares in the target company, the UPSI came into existence on 20th March 2008.[3]

Further, the decision to purchase the shares was a price sensitive information only known to insiders. Mr. Kaul was on the board of Rexcel and Solus and was in constant touch with Mr. Umesh Sethi, the Vice President and Mr. Malvinder Singh, Head of Global Finance of Ranbaxy. Being an insider, he made investments on behalf of his wife on 27th and 28th March 2008.[4]

Therefore, it was alleged that Mr. Kaul, the appellant, was a connected person of Ranbaxy according to Regulation 2(c) (i) of the Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations 1992, who shared UPSI with his wife in turn violating sections 12 A(d) and (e) of the Securities and Exchange Board of India Act 1992.[5]

Unpublished Price Sensitive Information (UPSI)

The first argument put forth by the appellant’s side was that the investment related information could not be termed as UPSI under Section 2 (k) and (ha) of the 1992 SEBI Regulations. It stated that under section 2(ha), ‘price sensitive information’ means any such information which would impact the price of the securities of the company once published. It was further contested that under Section 2 (k) only the company can publish such an information.[6] Now, since the that unpublished information didn’t concern Solrex but the target company and that it had no idea about this information and therefore couldn’t publish it, it was argued that this leads to the conclusion that this wasn’t a UPSI. 

There are some shortcomings in the arguments put forth here. First, it was contested that such information has to pertain to that company and published by it. However, Sections 2 (k) and (ha) talk about ‘any information which relates directly or indirectly to a company’. Therefore, there is no specification of that sort. Further, section 2 (e ) speaks about the reasonable expectation of a connect person of ‘the company’ having access to UPSI with respect to the securities of ‘a company’. The same was pointed out by the advocate general in this case as well. He further clarified that ‘a company’ is with respect to the company regarding which the decision is made while ‘the company’ is with regard to the company whose board of directors have made the decision. This distinction is of utmost importance, as without this the purpose of the regulations will be negated. Therefore, it is not important for that information to belong to the same company as whose security prices would get affected if such information got published, so long as belongs to either of the companies and would affect the security prices of the company it would be treated as ‘price sensitive information’.[7]

Solrex was ‘the company’ investing in Orchid, the ‘a company’ in this scenario. So, the decision made on 20th March 2008 would be termed as UPSI under the 1992 regulations. Moreover, even under the 2015 regulations, Section 2 (n) talks about information of ‘a company’ while defining UPSI.[8] Therefore, the decision made by the board to invest would still be UPSI under this regulation.


Now, the second question that arises is whether the appellant is an insider under section 2 (e ) of the regulations. Under the regulations, an insider is any person who is connected or deemed to be connected to the company, and ‘by virtue of such connection’ it can be assumed that such a person had access to UPSI of a company.[9] In the current scenario, Mr. Kaul was the non-executive independent director of Ranbaxy. Further, he was the part of the audit as well as the compensation committee. Moreover, Mr. Kaul was is contact with , Mr. Umesh Sethi and Mr. Malvinder Singh, CEO and Vice President of Ranbaxy, around the time when the investment decision was made. Therefore, it could be reasonably presumed that Mr. Kaul could have access to such UPSI, or had access to it. Furthermore, it is suspicious how all the concerned people including  Mr. Umesh Sethi and Mr. Malvinder Singh stated that they did not per se recall the particulars of the conversation they had with Mr. Kaul. Additionally, they claimed to have forgotten when such conversation happened in the first place. So, the tribunal based its arguments on the precedent set by various cases to justify its reliance on circumstantial evidence. Like in the Mousam Singha Roy v. State of West Bengal[10] case, it was upheld by the court that no absolute standard of proof exists for criminal or civil cases, the degree varies from case to case. Further, in United States of America v. Raj Rajaratnam[11]the court laid down certain criteria that had to be met for the case to solely rely on circumstantial evidence. Therefore based on these precedents and the chain of events, the tribunal found Mr. Kaul and Mrs. Kaul guilty of insider trading under Section 3 of the SEBI Regulations, 1992. 

Reliance on US cases and provisions

This case is based on the criteria set by the United States of America v. Raj Rajaratnam[12]which needs to be met for consideration of circumstantial evidence in insider trading cases. Moreover, in numerous circumstances SEBI has relied upon US provisions to effectively deal with cases regarding circumstantial evidence.[13] However, SEBI could certainly bridge more gaps between the provisions in the US and the ones in India, so as to ensure that the object of the act is effectively met. 

Like, under the provisions of the Securities Exchange Act 1934, in the US, both the ‘tipper’ as well as the ‘tippee’ are held liable for insider trading.[14]  Therefore, the act recognises that in certain circumstances the tipper might actually gain some benefit by sharing such UPSI with the tippee, owing to which the act holds both parties guilty for insider trading under its provisions. Moreover, the situation in the US has evolved in a way that now the courts have eradicated the need to prove ‘pecuniary or personal’ benefit of the tipper from sharing such UPSI. The reasoning used behind this is that the tipper has an obligation to not share such UPSI improperly. This is because once transferred or received it, such UPSI shifts the fiduciary duty to them, making them liable if improper disclosure is made by them of such information.[15]Therefore, if we look at the current scenario in light of the US provisions, Mr. Umesh Sethi as well as Mr. Malvinder Singh would be held liable for insider trading as tippers since they were entrusted with the UPSI, which they transferred to Mr. Kaul making him the tippee in this case.

In India, under Regulation 3, an insider has the fiduciary duty to not disclose the UPSI to anyone outside bounds of official communication. Such communication is “prohibited” however, there is no clarity whether such communication outside the course of business or employment would be seen as insider trading or not. Further, although Regulation 4 does state that violation of regulation 3 would make a person liable for insider trading but the ambiguity of the provision leaves a vast area for interpretation under regulation 3.[16] Even the current regulation of 2015 does not provide clarity of interpretations of these two provisions.[17] If India too had a clear and stricter application of its regulations, Mr. Umesh Sethi and Mr. Malvinder Singh would have been liable for insider trading. This is because their suspicious statements about not remembering the details of the calls, when they had taken place, how these telephonic conversations were outside the workplace with no record of what was discussed etc. would point towards their guilt for indulging in insider trading. 

In the current era of modernisation and globalisation, extra-territorial applicability of Insider Trading Regulations and effective regulatory agencies would be extremely beneficial to attract investors. Across the world, the securities market is extremely competitive given the limited capital. Therefore, building investor confidence through efficient securities laws become the utmost importance.[18] However, no such provision of extra-territorial applicability exists in Indian laws[19]. Whereas, under the US provisions if fraud in Insider trading abroad effects the security markets of the US, then the US jurisdiction applies to that case. Further, under Rule 10b-5  of the SEC, insider trading isn’t just limited to listed companies in the US.[20]

Further, in the US, SEC provisions do not require serving of a notice to initiate proceedings in insider trading cases. Moreover, such investigation is made public. Further, rewards are given to persons who come forward with information in insider trading case to encourage people. The same does not hold true for India.[21]


The present case is a landmark when it comes to applicability of circumstantial evidence in insider trading cases. However, there are certain short-comings in the case which were discussed above. Although the Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, is a brilliant piece of legislation which has effectively limited insider trading cases in India however, its restrictive interpretation as well as ambiguous provisions have been detrimental to the court while dealing with such offences. Therefore, in addition to using cases from the United States as precedent, SEBI could also take inspiration from certain provisions of the SEC to establish progressive and precise guidelines to deal with such offences in an efficient manner. 

[1] V.K Kaul v. The Adjudicating Officer Securities and Exchange Board of India (2013) 2ComplLJ583 (SAT).

[2] V.K Kaul v. The Adjudicating Officer Securities and Exchange Board of India (2013) 2ComplLJ583 (SAT).

[3] V.K Kaul v. The Adjudicating Officer Securities and Exchange Board of India (2013) 2ComplLJ583 (SAT).

[4] V.K Kaul v. The Adjudicating Officer Securities and Exchange Board of India (2013) 2ComplLJ583 (SAT).

[5] Securities and Exchange Board of India, 1992.

[6] Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 1992.

[7] V.K Kaul v. The Adjudicating Officer Securities and Exchange Board of India (2013) 2ComplLJ583 (SAT).

[8] Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 2015.

[9] Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 1992.

[10] Mousam Singha Roy and Ors v. State of Bengal (2003) 12 SCC 377.

[11] United States of America v. Raj Rajaratnam (2009) Cr. 1184 (RJH).

[12] United States of America v. Raj Rajaratnam (2009) Cr. 1184 (RJH).

[13] Shruti Ranjan, ‘The Use of Circumstantial Evidence in Securities Law Enforcement’ (2020) ICL < https://indiacorplaw.in/2020/09/the-use-of-circumstantial-evidence-in-securities-law-enforcement.html&gt; accessed 1 July 2021. 

[14] Securities Exchange Act, 1934, s. 10(b).

[15] Salman v. United States  (2016) 137 S. Ct 420, 425.

[16] Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 1992. 

[17] Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 2015.

[18] Nishith M. Desai and Krishna A. Allavaru, ‘INSIDER TRADING: A COMPARATIVE STUDY’ (n.d.) <http://www.nishithdesai.com/fileadmin/user_upload/pdfs/Associates_Insider_Trading_-_A_Comparative_Study.pdf&gt; accessed July 2021.

[19] Kirthana Singh, ‘Insider Trading laws in India in comparison with the laws in US and UK’ (n.d.) <http://www.legalservicesindia.com/article/2567/Insider-Trading-laws-in-India-in-comparison-with-the-laws-in-US-and-UK.html&gt; accessed 6 July 2021.

[20] Nishith M. Desai and Krishna A. Allavaru, ‘INSIDER TRADING: A COMPARATIVE STUDY’ (n.d.) <http://www.nishithdesai.com/fileadmin/user_upload/pdfs/Associates_Insider_Trading_-_A_Comparative_Study.pdf&gt; accessed July 2021.

[21] Mohsin Kamshad, ‘Insider Trading in India in Comparison with USA’ (SSRN, 2020) < https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3687905> accessed 21 June 2020.

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