SEBI Imposes Stiff Penalty for Communication of UPSI

Author: thinkinglegal | September 10, 2020 - 21:45 | Tags: Regulatory Advisory & Dispute Resolution

In the world of hyper connectivity and rapid technological advancement, the Gordon Gekkos of today’s world don’t need to rely on traditional models of corded Beetle landlines. They have a plethora of applications and social media platforms to choose from their smartphones to discuss unpublished price sensitive information (“UPSI”). To deal with the communication of UPSI using modern channels of communication, the Securities and Exchange Board of India (“SEBI”) has started looking beyond the conventional ways such as KYC documents and bank account transactions for tracking communication of UPSI.

SEBI’s Order

On 31st August, 2020, SEBI passed an order penalizing one individual for disclosing UPSI related to financial results of HDFC Bank through WhatsApp messages prior to the official announcement by the Company. In this case, the market regulator levied a fine of Rs 15 lakhs on the noticee.


  • During November 2017, certain articles were published in newspapers/print media referring to the circulation of UPSI in various private WhatsApp groups. Financial results of certain companies (including HDFC Bank) were being circulated prior to their official announcements to the respective Stock Exchanges.
  • SEBI promptly initiated a preliminary examination in the matter of circulation of UPSI through WhatsApp groups. SEBI’s investigation was  started an investigation in the matter of circulation of UPSI through WhatsApp between the period of January 01, 2016 to January 25, 2016.
  • Search and seizure operation for 26 entities of ‘Market Chatter’ WhatsApp Group were conducted and approximately 190 devices, records etc., were seized.
  • Prominent market operators, company executives, auditors, analysts, brokerage firms, and investment advisors came under intense scrutiny.
  • SEBI found that a WhatsApp message was sent from the noticee’s phone on 25th January, 2016 at 09:51am stating HDFC’s Net Interest Income (“NII”) for December 15, quarter at Rs. 7,050 crores, while the official numbers were disclosed by HDFC at 12:07 pm on the same day.

What is Unpublished Price Sensitive Information (UPSI)?

In terms of Regulation 2 (1) (n) of SEBI (Prohibition of Insider Trading Regulations), 2015 (“PIT Regulation"), UPSI includes financial results.

Although the financial data of the December 2015 quarter of HDFC bank was already available in the public domain, the NII number available had a minuscule deviation of 0.20% to 0.25% from the actual figures disclosed on the exchange. The NII figures cannot be derived from profit figures available in the news and hence, the communication and circulation of NII figures of HDFC bank through WhatsApp was considered to be UPSI by SEBI.

Researc or UPSI?

SEBI ruled that while it is not unlikely for financial analyst to guess-estimate NII for a company based on the available financial data, historical trends, and market assumptions and it is possible that such information may not constitute UPSI despite the numbers being identical, not a single piece of evidence was placed before SEBI showing the information communicated by the noticee was based on publicly available information, estimates, and predictions.

Can penalty be imposed for mere “communication”?

SEBI held that the PIT Regulations do not exempt the person from the guilt of communicating merely on the fact that no trades had taken place based on the UPSI thus communicated. The main problem in case of dissemination of information through WhatsApp is the end to end encryption system of transfer of information because of which the data cannot be accessed by third party except receiver and sender. Such technological constraint has made it nearly impossible to discover the complete trail of messages though, on the face of the facts of the case, SEBI held that the messages were circulated among several market associated personals.


This order sends a strong signal to the market participants that SEBI is investigating and penalizing entities for communication of UPSI, even if such communication does not lead to trading. In this case, SEBI has imposed a relatively high penalty on the reasoning that even though the monetary loss to the investors cannot be computed, unauthorized circulation of UPSI such as financial results holds a scope to pose a greater threat to the integrity of the market, as this kind of activity has a serious impact on the price of the securities where the limited set of people having access to UPSI stand to gain at the expense of the innocent gullible investors. It is likely that the trend of imposing high penalties for communication of UPSI will continue, taking a leaf out of the Rajat Gupta case.

This post has been contributed by Ms. Vaneesa Agarwal and Mr. Hardik Singh.

[Disclaimer: This article is for academic purpose and is solely to provide readers with general information regarding developments in Indian law. For specific queries, please write to us at]