Securities Fraud in India: A Criminological Examination of Insider Trading in India

Abstract

Securities fraud, mainly insider trading, poses a formidable challenge to the integrity and fairness of financial markets worldwide. In the Indian context, where investor confidence is pivotal for economic growth and development, addressing the complexities of insider trading is paramount. This paper comprehensively examines insider trading through a multidisciplinary lens, encompassing criminological perspectives, judicial interpretations, regulatory frameworks, and enforcement mechanisms.

Drawing on prominent case studies such as Dilip Pendse v SEBI, Hindustan Lever Limited v SEBI, Rakesh Aggarwal v SEBI, and others, the paper elucidates the motivations, methods, and consequences of insider trading. It underscores the detrimental impact of this illicit practice on market efficiency, investor confidence, and overall market integrity. Through criminological theories such as rational choice theory, social learning theory, and neutralization techniques, the paper delves into the psychological and social factors that drive individuals to engage in insider trading, offering valuable insights into the decision-making processes of perpetrators.

Furthermore, the paper critically evaluates the legal framework established by the Securities and Exchange Board of India (SEBI) to combat insider trading. It analyses the effectiveness of regulations such as the (Prohibition of Insider Trading) Regulations, 2015 while highlighting challenges in defining and proving unpublished price-sensitive information (UPSI) and enforcing penalties. The paper elucidates the evolving landscape of insider trading regulation and enforcement in India by examining judicial interpretations and case law.

Despite regulatory efforts, the gap between law and enforcement persists, necessitating innovative strategies to strengthen deterrence against insider trading. Recommendations are proposed to enhance surveillance and monitoring, streamline enforcement processes, impose stricter penalties, protect whistleblowers, promote international cooperation, and foster a culture of compliance and transparency.

Combating insider trading requires a concerted effort from regulators, market participants, and stakeholders. By addressing the root causes of insider trading, enhancing regulatory oversight, and promoting ethical conduct, we can cultivate a more resilient and transparent securities market that instils trust, encourages investment, and fosters long-term economic prosperity.