Authored by Lakshmi Narasimhan Srikrishna

SEBI, through an adjudication order dated 12.12.2025, examined allegations of insider trading in the scrip of Refex Industries Limited (“Company”). The proceedings arose from SEBI’s analysis of trading activity preceding the public disclosure of certain price sensitive corporate developments, which seemingly indicated suspicious trades executed by certain persons connected with the Company. Based on its preliminary examination, SEBI initiated adjudication proceedings against the concerned persons (the “Noticees”) for alleged violations of the SEBI (Prohibition of Insider Trading) Regulations, 2015 (“PIT Regulations”).

In its action, SEBI alleged that the Noticees were ‘insiders’ or ‘connected persons’ within the meaning of the PIT Regulations and were in possession of unpublished price sensitive information (“UPSI”) relating to the Company at the time they traded in shares of the Company. SEBI alleged that the Noticees had therefore violated:

1. Regulation 4(1) of the PIT Regulations (which prohibits trading in securities when in possession of UPSI); read with

2. Regulation 4(2); (which specifies that in case of connected persons, the onus of establishing that they were not in possession of UPSI shall be on such connected persons), and the corresponding provisions concerning relevant penalties under the SEBI Act, 1992.

Submissions of the Noticees

The Noticees denied the allegations and, inter alia, submitted that: (i) the information relied upon by SEBI did not qualify as UPSI, or alternatively, was already generally available in the public domain; (ii) there was no causal connection between the alleged UPSI and the trades executed by each of them; (iii) the trades were carried out in the ordinary course of investment and not with any intent to exploit any UPSI; and that (iv) mere access or proximity to UPSI could not automatically lead to a presumption of ‘insider trading’ without clear evidence of misuse.

The Noticees also relied on past SEBI orders and judicial precedents to argue that suspicion alone could not substitute proof of insider trading.

SEBI’s Findings

SEBI rejected the Noticees’ submissions and held that:

1. The information made available to the Noticees in question clearly fell under the definition UPSI, as it was specific, non-public and capable of materially affecting the price of Refex Industries’ shares once disclosed.

2. The Noticees fell under the definition of ‘connected persons’ and therefore the statutory presumption under Regulation 4(2) would be triggered.

3. The timing of trades, their nature, and proximity to the UPSI period demonstrated that the trades were executed by the Noticees while in possession of UPSI.

4. The Noticees failed to discharge the burden of proof required to rebut the statutory presumption of insider trading with respect to connected persons.

SEBI reiterated that under the PIT Regulations, trading while in possession of UPSI is sufficient to establish a violation, irrespective of whether actual misuse or intent is independently proved given that the onus of burden of proof is on the connected persons where trading happens while in possession of UPSI.

Penalty Imposed

For the purpose of determining whether a penalty is to be imposed in the present case, SEBI observed that the conduct of “Noticee 1 reflects a clear disregard of the diligence expected from an individual in possession of UPSI and the trading in Refex by Noticees 2 and 3 while in possession of UPSI, undermine the very purpose of the PIT Regulations” thereby attracting the need for imposing a penalty.

In exercise of powers under Section 15G of the SEBI Act, 1992, SEBI imposed monetary penalties on the Noticees, having regard to the seriousness of the violations, the need for market integrity, the deterrent objective of insider trading regulations and considering the prior instances of penalties imposed by SEBI on the Noticees. SEBI noted that insider trading strikes at the core of investor confidence and undermines the fairness of securities markets, warranting strict enforcement action and awarded penalties amounting to Rs. 10 Lakhs and Rs. 25 Lakhs each to Noticees 1 and Noticees 2 and 3 respectively.

Implications and Key Takeaways

The imposition of a penalty in this case demonstrates that SEBI continues to adopt a strict, possession-based standard in insider trading cases and continues to hold that ‘Connected Persons’ bear a heavy burden to demonstrate with adequate, convincing evidence that trades were not motivated by UPSI.

In this regard, it is also clear that internal compliance failures, including weak controls around identification and handling of UPSI, can expose companies and individuals to regulatory action. For avoiding such consequences, listed companies must:

1. Strengthen UPSI identification, information barriers, and trading window controls;

2. Sensitize senior management and ‘Connected Persons’ on the application of the presumption-based framework with respect to the burden of proof under Regulation 4(2) of the PIT Regulations; and

3. Spread awareness on the need for ‘Connected Persons’ to maintain clear documentation with respect to investment decision-making and rationale.