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Insider:
According to the Indian stock market regulator, SEBI, "insider" means
any person who, is or was connected with the company or is deemed
to have been connected with the company, and who is reasonably
expected to have access, connection, to unpublished price sensitive
information (UPSI) in respect of securities of a company, or who has
received or has had access to such unpublished price sensitive
information. Inside unpublished price sensitive fact is inside
information which only a select few persons know because of their
closeness to the company and which has not been publicly
circulated.
Categories of insider:
There are two categories of Insiders i.e.
(I)Primary Insiders who are directly connected to the company.
For e.g.: Director, office, employee, shareholders or any person who is
related to the company.
(ii) Secondary Insiders are those who deemed to be connected with the
company as they are expected to have access to unpublished price sensitive
information.
For e.g.: subsidiary company, sister concern, merchant bankers, advisors,
brokers etc.
Case Study
Dilip pendse v. Sebi
This was perhaps the simplest case of Insider Trading which was handled by
SEBI and it had no difficulties in punishing the offenders. The facts were that
Nishkalpa was a wholly owned subsidiary of TATA Finance Ltd (TFL), which
was a listed company. D. P. was the MD of TFL. On 31/03/2001, Nishkalpa had
incurred a huge loss of Rs. 79.37 crore and this was bound to affect the
profits of TFL. This was basically the unpublished price sensitive information
of which Pendse was aware. This information was disclosed to the public only
on 30/04/2001. Thus any transaction by an Insider between the period
31/03/2001 to 30/04/2001 was bound to fall within the scope of Insider
Trading. DP assed o his information to his wife who sold 2, 90,000 shares of
TFL held in her own name as well as in the name of companies controlled by
her and her father-in-law. It was very easy for SEBI to prove Insider Trading in
this cake walk or vanilla case.