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The sales of company shares by 5 senior executives have come under scrutiny as IndusInd shares declined over 30 per cent due to losses incurred by from its derivatives exposure.
Senior officials at IndusInd Bank are under regulatory scrutiny for potential violations of insider trading regulations.
According to a report in The Economic Times newspaper, the Securities and Exchange Board of India (Sebi) is examining whether five senior executives of the private sector lender were in possession of unpublished price-sensitive information (UPSI) while selling shares of the company in the open market.
The report stated that Sebi has sought details of trades executed by the senior officials.
According to stock exchange disclosures, between May 2023 and June 2024, IndusInd Bank Chief Executive Officer Sumant Kathpalia sold nearly 950,000 shares valued at approximately Rs 134 crore (Rs 1.34 billion), while Deputy Chief Executive Officer Arun Khurana sold 550,000 shares worth around Rs 82 crore (Rs 820 million).
These shares were part of their employee stock option plans.
The transactions have come under scrutiny as IndusInd shares have declined over 30 per cent due to losses incurred by the lender from its derivatives exposure.
Could the share sales land IndusInd officials in trouble?
If a top official has traded in shares while in possession of UPSI, it could potentially amount to a violation of Sebi's insider trading norms, unless the transactions fall under specific exceptions permitted by the regulations, said Supreme Waskar, a corporate lawyer based in Mumbai.
However, the law provides certain exemptions.
These include off-market inter-se transfers between insiders, trades executed pursuant to a pre-approved trading plan, or transactions carried out to comply with statutory or regulatory obligations.
If the trades do not meet the criteria for these exceptions, it would constitute a breach of insider trading norms, he added.
Under Sebi regulations, insiders must disclose any change in shareholding if the transaction value exceeds Rs 10 lakh.
The company also has an obligation to ensure the trading window remains closed during periods when insiders are reasonably expected to have access to UPSI.
Failure to comply with these disclosure and compliance norms can also result in regulatory action.
What are the penalties for insider trading?
If an insider trades in securities while in possession of UPSI, Sebi can impose monetary penalties starting from Rs 10 lakh (Rs 1 million), which can go up to Rs 25 crore (rs 250 million) or three times the profit made from such trades, whichever is higher, said Waskar.
In cases involving non-disclosure of shareholding changes as mandated under Sebi regulations, the penalty ranges from a minimum of Rs 100,000 to a maximum of Rs 1 crore (Rs 10 million).
Additionally, under Section 24 of the Sebi Act, the regulator can initiate criminal proceedings, which may lead to imprisonment for up to 10 years, a fine of up to Rs 25 crore, or both, Waskar said.
However, criminal convictions for insider trading remain rare in India compared to jurisdictions such as the United States.
Feature Presentation: Ashish Narsale/Rediff.com
