116 B, Mittal Towers, Nariman Point, Mumbai, India

Around 2017, it was published in news media that unpublished price sensitive information (“UPSI”) regarding predicted earning patterns of certain companies listed on stock exchanges were being circulated by certain individuals on WhatsApp groups. The concern was this UPSI was being circulated prior to such data being officially disclosed to the exchanges in accordance with law. Basis these news articles, SEBI initiated an investigation which led to an adjudication and order by SEBI, whereby it was held the concerned persons found to be circulating UPSI were guilty of violating insider trading regulations by unlawful communication of UPSI.

SEBI carried out an investigation in the above matter of circulation of UPSI through WhatsApp messages to ascertain any possible violation of the provisions of the SEBI Act, 1992 (“SEBI Act”) and the SEBI (Prohibition of Insider Trading) Regulations, 2015 (“PIT Regulations”).

SEBI was required to determine whether the concerned persons found to be circulating the UPSI had violated the provisions of sections 12A(d) an 12A(e) of the SEBI Act and regulation 3(1) of the PIT Regulations.

  • no connection was established between company and the concerned person or the sender of the message;
  • no leak was established from the insiders;
  • without establishing a connection and without leak there cannot be UPSI;
  • without the guarantee about the source that the information is from the company there cannot be UPSI;
  • there was no nexus/no definite pattern of access to UPSI;
  • there is no mens rea established.

SEBI dismissed these arguments and, inter alia, made the following observations based on the facts in each of the cases:

  • the circulated WhatsApp messages included information on revenue, profit before interest and profit after tax which were not approximations but definite amounts and exactly matched with the actual financial results;
  • the shared information could not be claimed to based on any market research or based on the estimations made by the concerned person. Sharing of sensitive information to a select few to the exclusion of others is against the investor’s interest; and
  • in view of the gravity of consequences arising out of such sharing of information among the closed groups through WhatsApp or social media platform, the adjudicating officer was not inclined to give any benefit of doubt in favour of the concerned person by treating the information as HOS as claimed by the notice.

Whilst SEBI could not trace the origin of the WhatsApp texts due to inherent technological limitations, SEBI found that the information circulated by the concerned person through Whatsapp was similar to official announcements later made by the listed companies. SEBI relied on the Supreme Court decision in the case of Jagir Singh v. Ranbir Singh (1979 AIR 381) to state that what cannot be done directly, cannot be allowed to be done indirectly as that would be an evasion of the statute and held that the concerned persons were liable for violation of the provisions of sections 12A(d) an 12A(e) of the SEBI Act and regulation 3(1) of the PIT Regulations.