Our Blogs

Commencement, Cessation, and Proof

1. Introduction

Significant corporate transactions do not usually begin with a Board resolution. A merger may start with a conversation, an acquisition with preliminary discussions, or a buyback with an internal proposal that is still being evaluated. By the time a transaction reaches the Board for approval or is disclosed to the stock exchanges, it may already have passed through several stages of discussion and deliberation.

This raises an important question under the SEBI (Prohibition of Insider Trading) Regulations, 2015 (the “PIT Regulations”): when does information relating to a proposed transaction become Unpublished Price Sensitive Information (“UPSI”)?

The answer cannot always be found by looking at the date of Board approval or the execution of a final agreement. At the same time, every tentative idea or preliminary conversation cannot automatically be treated as UPSI. The real issue lies somewhere in between: at what point does a proposal move beyond a mere possibility and acquire the character of UPSI?

SEBI's approach in several insider trading proceedings shows that this question is largely fact-specific. How a proposal develops, whether the information later becomes public through other means, and whether its transmission to a trader can be shown at all, become relevant to how these matters are decided.

2. The Legal Framework

Regulation 2(1)(n) of the PIT Regulations defines UPSI as information relating to a company or its securities that is not generally available and which, upon becoming generally available, is likely to materially affect the price of the securities. The definition ordinarily extends to information relating to financial results, dividends, changes in capital structure, mergers, demergers, acquisitions, delisting, disposals, expansion of business and similar transactions, as well as changes in key managerial personnel.

The definition, notably, does not tie UPSI to formal approval of the underlying transaction. A proposal may develop over time, discussed internally, refined, and acted upon well before it reaches the stage of Board approval or public disclosure. Yet the first emergence of an idea cannot, by itself, always be treated as the commencement of UPSI. Companies routinely explore possibilities that never progress further. The difficulty lies in identifying the stage at which information relating to a proposed transaction acquires sufficient substance to fall within the scope of UPSI, and The difficulty lies not only in identifying when information acquires this character, but also in establishing that it reached the person who traded. SEBI's orders in several matters provide useful guidance on both questions.

3. From an Idea to a Proposal

A corporate transaction typically develops in stages. An idea may first arise within management, followed by preliminary discussions on feasibility or commercial implications. As matters progress, the proposal becomes more specific, decision-makers engage with it directly, and concrete steps are taken towards implementation.

These stages cannot be treated identically. There is an obvious difference between a broad idea being explored and a specific proposal being actively pursued. Equally, the fact that further negotiations or approvals remain pending does not necessarily mean the information has not already acquired the character of UPSI. The relevant inquiry is therefore not confined to whether the transaction has been finalised. It requires examining how far the proposal had actually developed at the relevant point in time. This is why chronology matters: SEBI's approach in the three matters discussed below shows that no single formal step, whether Board approval, a public announcement, or even the company's own confirmation, can be relied on as the fixed marker for when UPSI begins, or for whether a finding of insider trading will ultimately hold up.

4. The SEBI Approach: Looking Beyond Formal Approval

4.1 Adani Green Energy Limited: from preliminary negotiations to UPSI

Adani Green Energy Limited's proposed acquisition of stakes in SB Energy Holdings Limited is a useful recent example of how information about a transaction develops into UPSI. Discussions had taken place earlier and resumed towards the end of April 2021, after which negotiations, offers and further discussions continued.

The show cause notice alleged that the information became UPSI from 29 April 2021, the date on which internal discussions resumed, right up to the company's public announcement on 19 May 2021. The real question was whether the information had actually acquired the necessary certainty and specificity on 29 April itself.

SEBI did not accept that the information became UPSI from the mere resumption of discussions. It found that the transaction only acquired sufficient concreteness on 13 May 2021, when the parties signed a non-disclosure agreement and detailed due diligence began through access to the virtual data room. It is also worth noting that when the stock exchange sought clarification from AGEL after press reports began to circulate, the company stated on 18 May 2021 that there was no disclosable event and no definitive agreement in place, a position SEBI did not dispute at the time. This supported the same conclusion, that the information had not become UPSI as early as 29 April 2021.

The order shows that preliminary discussions relating to a significant acquisition are not, by themselves, enough to establish that UPSI has commenced. The information has to move beyond an exploratory stage and acquire real substance.

4.2 Adani Green Energy Limited: when UPSI stops being unpublished

The same matter is significant for a second reason. It shows that finding the point at which UPSI begins is only one part of the inquiry.

After finding that the acquisition information had crystallised into UPSI on 13 May 2021, SEBI looked at news reports on the proposed transaction that appeared on 16 May 2021. The question was whether information that had already become UPSI stayed UPSI once details of the transaction were reported in the press.

SEBI found that the information had become available on a non discriminatory basis through these news reports. So although the information had become UPSI once the transaction acquired sufficient concreteness, it stopped being UPSI once it became generally available. This means the question is not only when information became UPSI, but also whether it remained UPSI at the time of the trading in question.

The information in this matter therefore moved through three stages: preliminary discussions, when the information had not yet become UPSI, crystallisation, when it acquired the certainty and specificity needed to become UPSI, and general availability, when it stopped being unpublished once the news reports appeared.

4.3 Rupesh Satish Dalal HUF: proving possession through circumstantial evidence

A different question arose in the matter concerning Rupesh Satish Dalal HUF. This case arose from the merger of HDFC Limited into HDFC Bank Limited, announced on 4 April 2022. The Notice, a Hindu Undivided Family whose karta is Rupesh Satish Dalal, was not connected to either company in any formal way. SEBI found that Dalal's son was a close friend of a member of Deloitte's valuation team, the firm appointed to value the merger. The two spoke on the phone and met in person on 31 March 2022. The very next day, the HUF bought multiple call option contracts in both HDFC Limited and HDFC Bank Limited, a pattern of trading completely different from its usual conduct, and sold out for a profit of roughly Rs. 5.67 lakh and Rs. 2.52 lakh once the merger was announced.

There was no direct evidence of what the Deloitte employee and Dalal's son actually discussed. No recording, no message, nothing in writing. SEBI relied instead on the surrounding circumstances: the closeness of the friendship, the timing of the calls and the in-person meeting, and a trading pattern that made no sense unless the HUF already knew what was coming. SEBI imposed a penalty of Rs. 10 lakh.

This case answers a different question from Adani Green. It does not ask when information became UPSI, since that point was not disputed. It asks how possession of UPSI can be shown against someone with no formal connection to the transaction at all, when there is no direct proof of what was actually said.

5. When Do Preliminary Negotiations Become UPSI?

These matters point to three separate questions, and any one of them can decide a case on its own.

The first is whether the information had developed enough to become UPSI at all, and whether it later stopped being unpublished. Adani Green shows both halves of this question. Discussions had resumed by late April 2021, but SEBI refused to treat that as the starting point, since the deal could easily have fallen through again, as it already had once before with a different buyer. It was only once a non-disclosure agreement was signed and due diligence began, on 13 May 2021, that the information became concrete enough to count as UPSI. Three days later, detailed press reports on the deal appeared, and SEBI held that the information had already become public by then, even though AGEL's own announcement came three days after that. A company's silence, or even its denial, does not keep information unpublished once it has genuinely reached the public elsewhere.

The second is whether the information actually reached the person who traded, and how much needs to be shown to prove it. Rupesh Satish Dalal HUF shows this at its hardest. Dalal had no formal connection to HDFC or its merger at all. His son's friend did, as a member of the valuer's team. SEBI had no direct evidence of what the two actually discussed, no message, no recording, nothing in writing. It relied instead on the pattern: the friendship, a phone call, a meeting, and a sudden, uncharacteristic set of trades placed the very next day.

Taken together, a transaction still moves through recognisable stages, from an exploratory possibility to a concrete proposal, then to UPSI, and eventually to information that is generally available, as Adani Green shows. Where trading is alleged, proving that the information actually reached the trader can rest on inference alone, without any direct evidence of what was communicated, as Dalal HUF shows.

This has a practical consequence for compliance functions. Companies should not wait for a matter to reach the Board before treating it as UPSI, but not every preliminary conversation should be treated as UPSI either. Equally, since possession of UPSI can be established through inference alone, without any direct evidence of what was communicated, persons connected even indirectly to someone with access to UPSI should assume that ordinary conduct, a phone call, a meeting, or a departure from a usual trading pattern, may on its own be enough to found a case against them.

6. Conclusion

The commencement of UPSI does not have a mechanical answer. A Board resolution, a signed agreement, or a public announcement can be useful markers, but none of them will always tell you when information became, or stopped being, UPSI, or whether a finding against someone will ultimately stand.

The matters discussed above show why the inquiry has to be asked from more than one angle. Adani Green shows that UPSI has a beginning and an end, and that both can be fixed independently of when the company itself chooses to speak. Rupesh Satish Dalal HUF shows that proof of possession can rest entirely on inference, even against someone with only a distant, indirect connection to the company.

For listed companies and persons involved in sensitive transactions, the practical lesson is twofold. Internal controls need to respond to the point at which information genuinely gains substance, not merely the point of formal approval, and need to account for the fact that this window can also close earlier than expected, once information reaches the public through other means. And a lack of direct evidence offers little real protection once a pattern of relationships and timing points clearly one way.

• Authored by Mugdha Chalke, Intern under the guidance of Mallika Agrawal, Associate.

Disclaimer

This publication has been prepared by RMA Legal for general informational purposes only and does not constitute legal, tax, financial or any other professional advice. The information has been compiled from sources believed to be credible; however, it is provided on an “as is” basis without any representation or warranty, express or implied, as to its accuracy or completeness, and RMA Legal shall not be liable for any loss arising from reliance on this publication. Readers are advised to seek appropriate professional advice before taking any action.