SEBI Order against the WhatsApp Leak Saga

This article while analysing the order of the Securities and Exchange Board of India (SEBI), discusses the role and function of SEBI and also meaning of Unpublished Price Sensitive Information. It also analysis the order in light of landmark case laws.
Estimated Reading Time: 9 minutes


In recent times the use of internet application has increased at a rapid rate. Even under various fields of business and law internet is used. The use of internet also increases the rate of risk in transactions that are carried out by the people in the society. Most of the information which can transferred from one to another can be very sensitive in nature. Such information can be used by any person to cause profit himself and cause loss to others. Such a loss was seen in the recent information sharing on the App named “WhatsApp” by individual by using Price sensitive information to gain illegal share of profits. In a financial market, the sensitive information of one corporation’s could be used to illegally create profits by the implementation of such action through the information gained. The Securities and Exchange Board of India (SEBI) recently was introduced to such as incident. The article discusses about the leakage of information through WhatsApp.

Securities and Exchange Board of India (SEBI)

Securities and Exchange Board of India (SEBI) is the prime regulator of Stocks and Securities in the Indian Financial Market. The other regulators include the Central Electricity Regulatory Commission (CERC) and the Telecom Regulatory Authority of India (TRAI). The main functions of SEBI include:

  1. Development of Market
  2. Protection of Investors
  3. Proper Regulation of Securities Markets

Insider Trading

Insider Trading is emerging to be one of the most prominently scrutinised cases of violations by market regulator Securities and Exchange Board of India. Firstly, Insider trading is the trading a public company’s stock or other securities (such as bonds or stock options) based on material, non-public information about the company. insider trading is highly discouraged by the Securities and Exchange Board of India (SEBI) to promote fair trading in the stock market for the benefit of the common investor. In simple terms, insider trading means that an individual buys or sells a stock based on information that is not available to the general public. It can do by any of the individual in connection with the company. This individual can be a corporate officer, from the board of directors, employee or someone who has received the non-public information from the company.

Insider trading is considered to illegal as:

  1. Unfair for other investors: Insider trading is seen as unfair to other investors in the stock market, who do not have access to the information. The investor with the non-public information could potentially make far larger profits from the stock market than a typical investor could not make.
  2. Morally wrong and un-ethical terms: It is a morally wrong and unethical way of trading in the stock market. All investors should get equal opportunities to trade with the same piece of information about the company.
  3. Hampers people’s confidence: Insider trading in any market reduces people’s confidence in the trading process. Thus, it causes a decrease in the investment made by the people in the market.

Rules and regulations governing the securities market

The Indian securities market has witnessed a lot of contortion, non-compliance, and encroachment of the general laws and rules governing their own organizations. It is important to have certain rules and regulations governing the securities market, in order to ensure that no person gets profited from trading on some ‘insider’ or on information that is not yet published for the public. In India, Insider Trading is regulated by SEBI thorough the SEBI (Insider Trading) Regulations, 1992. On 15th January 2015, the Securities and Exchange Board of India introduced a new regulation, namely, the SEBI (Prohibition of Insider Trading) Regulations (PIT), 2015. All such legislation is enacted to prevent the leakage “Unpublished Price sensitive Information” (UPSI).

Unpublished Price sensitive Information (UPSI)

UPSI means any information, relating to a company or its securities, directly or indirectly, that is not generally available which become generally available and it is likely to materially defect the price of the securities. The  definition  of  ‘unpublished  price  sensitive  information’  as  prescribed   under Regulation 2(1)(n) of SEBI (PIT) Regulations is as follows: “unpublished price sensitive information” means any information relating to a  company  or  its  securities,  directly  or  indirectly,  that  is  not  generally available  which  upon  becoming  generally  available,  is  likely  to  materially affect  the  price  of  the  securities  and  shall,  ordinarily  including  but  not restricted to, information relating to the following: –

  1. Financial results
  2. Dividends
  3. change in capital structure
  4. mergers, de-mergers, acquisitions, de-listings, disposals    and expansion of business and such other transactions
  5. changes in key managerial personnel; and
  6. material events in accordance with the listing agreement

Recent leakage of Unpublished   Price   Sensitive   Information

During November 2017, there were certain articles published in newspapers / print media   referring   to   the   circulation   of   Unpublished   Price   Sensitive   Information (hereinafter referred to as “UPSI”) in various private WhatsApp groups about certain companies ahead of their official announcements to the respective Stock Exchanges. Through such information SEBI initiated a preliminary examination in the matter of circulation of UPSI through WhatsApp groups during which search and seizure operation for 26 entities of Market Chatter WhatsApp Group were conducted and approximately 190 devices, records etc., were seized. 

The WhatsApp chats extracted from the seized devices were examined further and while examining the chats, it was found that in respect of around 12 companies whose earnings data and other financial information got leaked in WhatsApp. In such WhatsApp chat it was seen that the message the investigation revealed that the Notices communicated the UPSI related to Abuja Cements Ltd., viz., Revenue and PAT (Profit after tax) for the quarter ended December   2016, to   other   person (s) through   WhatsApp   messages.   From   the WhatsApp chat of the Notice 2 i.e., Shruti Vora. It was observed from the WhatsApp chats retrieved from Shruti Vora’s device that the aforesaid message was received by Shruti Vora from Neeraj Kumar Agarwal (Notice 1).

It was observed that the financial figures of Abuja Cements Ltd., (viz., Revenue and PAT) circulated through WhatsApp closely matched with those disclosed subsequently by Ambuja Cements Ltd. on stock exchanges (deviation in financial figures was within a range of 0.07% to 0.09%). Hence, the aforesaid message related to Ambuja Cements Ltd., would fall under UPSI and such circulation of financial figures through WhatsApp has been considered as communication of UPSI. The people who were in possession of the UPSI were termed as Insiders as per Regulation 2 (1) (g) of SEBI (PIT) Regulations, 2015, the provisions of which are furnished hereunder:

“insider” means any person who is:

  1. A connected person, or
  2. In possession   of   or   having   access   to   unpublished   price         sensitive   information.

After such impression in the investigations the appointment of adjudicating officer(AO) under section 19  read  with  Sub-section  (1)  of  Section  15-I  of  the  SEBI  Act,  1992  and  Rule  3  of SEBI  (Procedure  for Holding Inquiry and Imposing Penalties) Rules, 1995 (hereinafter referred to as “SEBI Adjudication  Rules”)  to  inquire  into  and  adjudge  under  section  15G of  the SEBI Act, 1992 for the alleged violations of provisions of section 12A(d) and 12A(e) of SEBI Act, 1992 and  Regulation3(1)of SEBI  (PIT)  Regulations,  2015,  committed by the Notices. The decision of AO found the aggrieved and then filled appeal before The Securities Appellate Tribunal.

The issues the case being:

  1. Whether the Notices have violated the provisions of Section 12 A (d) & 12 A (e) of the SEBI Act, 1992 and Regulation 3 (1) of SEBI (PIT) Regulations, 2015?
  2. Whether the Notices are liable for monetary penalty under Section15Gof the SEBI Act, 1992?
  3. If so, what quantum of monetary penalty should be imposed on the Notices?


The contention was encountered as there is no connection between her and the promoters or management of listed entities whose price sensitive information was circulated. The market regulator could not establish the leakage of information from the company’s employees, auditors, or other parties, who had access to such data. Information circulated by her was “heard on the street” news and does not emanate directly from the listed entity. “Heard on the street” (HOS) is a common practice in the industry where unsubstantiated gossip is shared and understood as speculation. It is commonly shared through media, including WhatsApp and other channels.

As the source of the leak could not be ascertained, the information shared by her could not be classified as unpublished price sensitive information. She merely forwarded the information received from others. There were many instances where the information shared by her did not match with the actual earnings. The matching of estimates with actual earnings was a “rare occurrence.” However, the market regulator “cherry picked” a few instances to establish charges.

SEBI on the other hand failed to establish a definite pattern of accessing or sharing of price sensitive information. The notice did not allege “men’s rea”—intentional wrongdoing and lastly, the sharing of information did not result in any insider trading. The market regulator, however, dismissed Vora’s (notice 2) arguments and said that: Circulated WhatsApp messages included information on revenue, profit before interest and profit after tax. These were not approximations but definite amounts and exactly matched with the actual financial results. Determining whether information is unpublished information or not is a mixed question of law and fact. The shared information could not be claimed to base on any market research or based on the estimations made by Vora.

Sharing of sensitive information to a select few to the exclusion of others is against the investor’s interest. It was stated that “it is evident that neither of the Notices was required to share such information as a part of their job description prior to the announcement of results. I am of the opinion that the circumstances and arrangement as observed above where the source of the information is difficult/not possible to trace back and yet the information has  been passed  through  a  chain  of  communication,  provides  a significant  scope for easy transmission of leaked UPSI to unauthorised personals causing a great disparity of  information and  prejudice millions  of  innocent  investors. 

In view of the gravity of consequences arising out of such sharing of information among the closed groups through WhatsApp or social media platform, I am not inclined to give any benefit of doubt in favour of the Notices by treating the information as HOS as claimed by the Notice 2. It was also observed from the summary of aforesaid findings, I am of the considered view that the messages about the financial results were circulated prior to the official announcement made by the Companies, is UPSI.  In my opinion, the disclosure of this information violates the rule of parity of information and perpetuated information asymmetry.

The prohibition against insider trading helps in ensuring fairness, achieving information symmetry and ultimately market efficiency. In reference to a Supreme Court Judgment the AO stated that in Jagir Singh v. Ranbir Singh[1]. The Hon’ble Supreme Court has held that what cannot be done directly, cannot be allowed to be done indirectly as that would be an evasion of the statute. The Supreme Court has held that it is a well-known principle of law that the provisions of law cannot be evaded by shift or contrivance, and that the objects of a statute cannot be defeated in an indirect or circuitous manner.


It was concluded that the Notices  are  liable  for  violation  of the provisions of Sections 12 A(d) & 12 A(e) of the SEBI Act, 1992 and Regulation 3(1) of SEBI (PIT) Regulations, 2015 and in an order it was stated that a  penalty  of ₹15,00,000/-(Rupees Fifteen Lakhs only) on each of the  Notices  viz., Neeraj  Kumar  Agarwal  and  Shruti  Vishal  Vora in  terms  of  the provisions of Section 15Gof the Securities and Exchange Board of India Act, 1992 for  the  violation  of Sections  12  A (d)  &  12A(e)  of  the  Securities  and  Exchange Board  of  India  Act,  1992  and  Regulation  3  (1)  of  SEBI  (Prohibition  of  Insider Trading) Regulations, 2015. The Notice shall remit / pay the said amount of penalty within 45 days from May 3, 2020 or service of this Order.


The order issued will help in creation of new enactments for the provisions to create a strict and effective system of transferring and regulating such Unpublished Price sensitive Information. The decision provided by the Adjudicating officer in the matter was in accordance with the regulations and in respect of the facts and contentions presented in front of the AO.

[1] 1979 AIR  381

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