Critical Analysis Of Laws Related To Insider Trading

Priya Kumari, Hidayatullah National Law University (Raipur)

Aniket Sahu, Hidayatullah National Law University (Raipur)

ABSTRACT

This paper provides a comprehensive critical analysis of the laws related to insider trading in India, exploring the evolution, effectiveness, and enforcement of these regulations. Insider trading, defined as the trading of a company's securities by individuals with access to non-public, price- sensitive information, undermines market integrity and investor confidence. The study begins with an examination of historical legislative efforts, starting with the Capital Issues (Control) Act of 1947 and progressing through significant committee recommendations, including those of the Thomas Committee (1948), Sachar Committee (1979), Patel Committee (1986), and Abid Hussain Committee (1989). Each of these reports underscored the necessity for robust regulatory frameworks to prevent the misuse of confidential information by company insiders. The establishment of the Securities and Exchange Board of India (SEBI) in 1988 marked a pivotal moment in the regulation of insider trading, culminating in the enactment of the SEBI Act of 1992. SEBI's mandate includes the prohibition of insider trading, price manipulation, and the protection of investor interests. The paper discusses key legislative milestones, such as the SEBI (Prohibition of Insider Trading) Regulations of 1992 and its subsequent amendments in 2002 and 2015, which introduced stringent compliance and disclosure requirements.

The analysis highlights notable case studies, including the Reliance Industries case (2007) and the Infosys insider trading scandal (2020), illustrating the challenges and complexities of enforcing insider trading laws. The paper further examines the role of compliance officers, continuous surveillance mechanisms, and the importance of a transparent disclosure regime in mitigating insider trading risks.

Finally, the paper emphasizes the detrimental impact of insider trading on market integrity, investor trust, and foreign investment, advocating for stricter enforcement measures and enhanced regulatory oversight. Recommendations for improving the existing legal framework include the adoption of advanced technological solutions, such as artificial intelligence, to detect and prevent illicit trading activities effectively.