Definitions — Insider, Connected Person, UPSI

Almost every insider-trading dispute in India is won or lost on three definitions in Regulation 2(1) of the SEBI (Prohibition of Insider Trading) Regulations, 2015: who is an insider, who is a connected person, and what counts as unpublished price sensitive information (UPSI). Get these wrong and the substantive prohibitions in Regulations 3 and 4 never bite; get them right and the rest of the architecture falls into place. This chapter dissects each definition against the bare text and the leading authorities — from Hindustan Lever and Rakesh Agrawal under the 1992 regime to the Supreme Court's modern restatements in Chintalapati Srinivasa Raju, Abhijit Rajan and Balram Garg — so that you can deploy them with the precision an examiner expects.

Why the definitions control everything

The 2015 Regulations are deliberately built so that the substantive prohibitions are short and the definitions do the heavy lifting. Regulation 3 forbids communication or procurement of UPSI; Regulation 4 forbids trading while in possession of UPSI. Neither prohibition means anything until you know who an insider is and what UPSI is. That is why an answer that races to "he traded, therefore he is guilty" loses marks — liability is gated by definitional thresholds that the regulator must cross first.

The structural debt is to the High Powered Committee chaired by Justice N.K. Sodhi, whose 2013 report rewrote the 1992 framework. The Committee consciously widened "insider" while tightening the proof discipline, and explained the policy logic in a clause-by-clause Note appended to the Regulations — an unusual drafting choice that the courts now treat as part of the interpretive material. For the longer story of how the 1992 Regulations gave way to the 2015 code, see our chapter on introduction and evolution from the 1992 Regulations. The hub page collects the full series at SEBI PIT notes.

Three propositions frame the whole subject. First, the definitions are status-and-information tests, not intention tests. Second, "insider" is the master category and "connected person" is only one route into it. Third, UPSI is defined functionally — by its effect on price and its non-availability — not by a closed list. Hold those in mind as we unpack each limb.

Insider: the master definition under Regulation 2(1)(g)

Regulation 2(1)(g) defines an insider as any person who is either (i) a connected person; or (ii) in possession of or having access to unpublished price sensitive information. The disjunctive "or" is the most important word in the chapter. It means there are two independent gateways to insider status, and the regulator needs to establish only one.

The first gateway is status-based: prove the person is a connected person and they are an insider, regardless of whether they actually held any UPSI. The second is information-based: a complete outsider — a courier, a printer, an eavesdropper — becomes an insider the moment they come into possession of or have access to UPSI. This second limb is the 2015 Regulations' decisive break from 1992, which had tethered insider status much more tightly to connection. The drafting closes the old loophole by which a person with no formal link to the company could trade on leaked information and escape the net.

Crucially, the definition does not require any mental element. There is no "knowingly" or "with intent" in Regulation 2(1)(g). Whether motive or intent matters at all surfaces later, at the trading stage — and the Supreme Court's answer in SEBI v. Abhijit Rajan (discussed below) is nuanced — but it plays no part in deciding who is an insider in the first place.

Connected person: the functional test in Regulation 2(1)(d)(i)

Regulation 2(1)(d) defines connected person in two limbs. Limb (i) is the functional core: a person who is or has, during the six months prior to the concerned act, been associated with the company — directly or indirectly, in any capacity including by reason of frequent communication with its officers, or being in a contractual, fiduciary or employment relationship, or being a director, officer or employee, or holding any position including a professional or business relationship — that allows such person, directly or indirectly, access to unpublished price sensitive information or is reasonably expected to allow such access.

Two features deserve emphasis. First, the test is not formal title but access to UPSI: the question is whether the association puts the person in a position to come by price-sensitive information, whether or not they actually did. Second, the explanation to limb (i) makes clear the relationship may be "of any nature, whether established or not" — a deliberately wide net that captures advisers, bankers, consultants and counterparties even outside a contract. The six-month look-back fixes the temporal window; an association that has lapsed beyond six months before the impugned trade does not satisfy limb (i).

The architecture means "connected person" is itself just a faster route into the insider category. If limb (i) is satisfied, the regulator need not separately prove possession of UPSI to establish insider status — though it will still have to prove UPSI and possession to make out the trading charge under trading when in possession of UPSI.

Deemed connected persons under Regulation 2(1)(d)(ii)

Limb (ii) of Regulation 2(1)(d) lists categories of persons who are deemed to be connected persons. Unless the contrary is established, the following are connected: (a) an immediate relative of connected persons specified in clause (i); (b) a holding, associate or subsidiary company; (c) an intermediary as specified in section 12 of the SEBI Act, or an employee or director thereof; (d) an investment company, trustee company, asset management company or an employee or director thereof; (e) an official of a stock exchange or of a clearing house or corporation; (f) a member of the board of trustees of a mutual fund or of the board of directors of its asset management company, or an employee thereof; (g) a member of the board of directors or an employee of a public financial institution; (h) an official or employee of a self-regulatory organisation recognised or authorised by the Board; (i) a banker of the company; and (j) a concern, firm, trust, Hindu undivided family, company or association of persons in which a director of the company or his immediate relative, or the banker of the company, holds more than ten per cent of the holding or interest.

The phrase "unless the contrary is established" is the workhorse. Deemed status is a rebuttable presumption: the listed person is treated as connected, but may discharge the burden of showing they fall outside the rationale of the definition. The categories are chosen because each ordinarily carries a reasonable expectation of access to UPSI — that expectation, not the label, is the true test, as the Supreme Court confirmed in Chintalapati.

Students should note the 2024–2025 amendment exercise expanded the definition of "relative" and proposed widening the deemed list (for example, to partners and employees of a firm in which a connected person is a partner, and persons sharing a household with a connected person). The core limb (i) functional test, however, remains the analytical anchor.

Immediate relative and the rebuttable presumption

Regulation 2(1)(f) defines an immediate relative as a spouse of a person, and includes parent, sibling and child of such person or of the spouse, any of whom is either dependent financially on such person, or consults such person in taking decisions relating to trading in securities. This qualifying tail is decisive: kinship alone does not make someone an immediate relative for these purposes. There must be financial dependence or consultation in trading decisions.

The Supreme Court applied this with rigour in Balram Garg v. SEBI (2022), arising from alleged trading in PC Jeweller Ltd. shares. The Court held that family members who were neither financially dependent on, nor consulted, the promoter could not be treated as connected persons, and that SEBI's case — built only on familial proximity and promoter status — failed. Critically, the Court ruled that communication of UPSI cannot be presumed from a close relationship alone; it must be proved by cogent material such as call records, emails or witnesses. Even applying the civil "preponderance of probabilities" standard, an inference of insider trading must rest on proven foundational facts, not on suspicion drawn from kinship. Balram Garg is therefore the leading modern authority on the limits of the immediate-relative route and on SEBI's evidentiary burden — themes we develop in communication or procurement of UPSI.

Reasonable expectation of access: Chintalapati Srinivasa Raju

The deemed-connected presumption is not automatic. In Chintalapati Srinivasa Raju v. SEBI (decided 14 May 2018), arising out of the Satyam Computer Services fraud, the Supreme Court interpreted the predecessor 1992 concept of deemed connection and held that mere status or relationship does not make a person an insider unless there is a reasonable expectation of access to UPSI. The Court observed that a "reasonable expectation to be in the know of things" can only be drawn as a reasonable inference from foundational facts — a phrase the Court would echo in later cases.

On the facts, the Court quashed SEBI's orders against the appellant founder-director who had resigned and stood at a distance from the price-sensitive information, while upholding orders against insiders closer to the fraud. The enduring lesson under the 2015 Regulations is that the deemed list in Regulation 2(1)(d)(ii) creates a presumption, but the underlying justification — likely access to UPSI — must be capable of reasonable inference, and the person may rebut it by showing the contrary. Chintalapati thus supplies the interpretive lens through which the words "unless the contrary is established" must be read.

UPSI: the functional definition in Regulation 2(1)(n)

Regulation 2(1)(n) defines unpublished price sensitive information as 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. The definition then sets out an illustrative list — "ordinarily including but not restricted to" — comprising information relating to: (i) financial results; (ii) dividends; (iii) change in capital structure; (iv) mergers, de-mergers, acquisitions, delistings, disposals and expansion of business and such other transactions; and (v) changes in key managerial personnel.

Two limbs must both be satisfied. The information must be (a) not generally available and (b) price-sensitive in the materiality sense. The list is illustrative, not exhaustive, so information outside the five heads can still be UPSI if it meets the two-limb test — a point the regulator routinely relies on. Conversely, information falling within a listed head is not UPSI once it has become generally available. Note that the original sixth illustrative head (material changes in policies, plans or operations) was removed by amendment, leaving five enumerated heads; the 2025 amendments further realigned the definition with material events disclosable under Regulation 30 of the LODR Regulations.

What is "generally available" information?

The first limb of UPSI turns on the antonym defined in Regulation 2(1)(e): generally available information means information that is accessible to the public on a non-discriminatory basis. The test is publication-and-access, not mere theoretical availability. Information selectively shared with a few analysts, or available only to those with privileged access, is not "generally available" — it remains UPSI in the hands of those who hold it before public dissemination.

The classic illustration is Hindustan Lever Ltd. v. SEBI (the appellate order of 1998 under the 1992 Regulations), arising from HLL's purchase of Brooke Bond Lipton India Ltd. (BBLIL) shares from the Unit Trust of India about two weeks before the public announcement of the HLL–BBLIL merger. SEBI treated the impending merger as price-sensitive information not yet generally available, and HLL — through common management with BBLIL under the Unilever umbrella — as an insider in possession of it. The case established that information about a planned amalgamation is paradigmatic UPSI until the market is told, and that the moment of public, non-discriminatory disclosure is what converts UPSI into generally available information. The same logic underpins the disclosure obligations covered in disclosures: initial and continual and the firm-level code of fair disclosure.

Possession, use and the question of motive

Because "insider" includes anyone in possession of or having access to UPSI, the 2015 scheme leans towards a possession standard rather than a use standard. Regulation 4(1) presumes that an insider who trades while in possession of UPSI has traded on the basis of it, subject to the defences in the proviso. The definitional debate about whether the trader must have used the information, or merely possessed it, therefore plays out at the Regulation 4 stage rather than in Regulation 2.

The motive question reached the Supreme Court in SEBI v. Abhijit Rajan (decided 19 September 2022), concerning the Chairman of Gammon Infrastructure Projects Ltd. who sold shares before public disclosure of the termination of certain project agreements. The Court held that actual gain or loss is immaterial, but the motive to make a gain or avoid a loss is essential to the charge — and that on the facts, the information (a termination that would relieve the company of obligations) was not such as a rational insider would exploit to profit, so the charge failed. Though decided under the 1992 Regulations, the reasoning informs how possession-based liability is understood today. Read alongside the earlier SAT decision in Rakesh Agrawal v. SEBI (2004), arising from the ABS Industries–Bayer AG acquisition, where the tribunal accepted that trades undertaken in the company's interest, without intent to make an unfair personal gain, did not attract penalty, the two cases mark the boundary of the possession principle. These threads are taken further in trading when in possession of UPSI.

Burden and standard of proof on the definitions

The definitions allocate the evidentiary burden in a layered way. For the functional connected person under limb (i), SEBI must establish the association and the resulting access (or reasonable expectation of access) to UPSI. For deemed connected persons under limb (ii), the listed status creates a presumption and the burden shifts to the noticee to establish the contrary. For immediate relatives, Regulation 2(1)(f) requires SEBI to show financial dependence or consultation in trading decisions before the deeming even applies.

The standard of proof in adjudication is the civil preponderance of probabilities, as the SAT and Supreme Court have repeatedly affirmed — but Balram Garg made clear that even this standard requires the inference of insider trading to rest on proven foundational facts, not conjecture. The earlier SAT jurisprudence — including Dilip Pendse v. SEBI, arising from trading in Tata Finance Ltd. shares, where the tribunal stressed fair procedure including cross-examination and the need for cogent evidence — points the same way: insider-trading findings, though civil in form, carry a quasi-criminal gravity and demand a heightened degree of probability. The definitions thus operate not in a vacuum but against a disciplined proof regime.

How the definitions feed the defences and trading plans

The definitions are the gateway to the safe harbours. A person who is an insider only because they possess UPSI can rely on the proviso to Regulation 4(1) — for instance, that the transaction was an off-market inter-se transfer between promoters who both possessed the same UPSI, or was carried out under a pre-cleared trading plan. A trading plan, formulated and disclosed before coming into possession of UPSI, is precisely a mechanism to break the link between possession and the trade — but it is only available to an "insider" as defined, and only insulates trades within its terms.

Equally, the legitimate-purpose carve-out in Regulation 3 — permitting communication of UPSI in furtherance of legitimate purposes, performance of duties or discharge of legal obligations — presupposes the definitional categories: it is the communication of UPSI by or to a person within the regulated class that the carve-out addresses. In short, every defence in the Regulations is parasitic on the three definitions; you cannot claim a safe harbour without first conceding (or contesting) insider status and the UPSI character of the information.

Common traps and recurring misconceptions

Several errors recur in both practice and examinations. The first is treating "connected person" and "insider" as synonyms. They are not: connected person is one route into insider status under Regulation 2(1)(g)(i), but a person can be an insider purely under limb (ii) by possessing UPSI without any connection at all. The second is assuming the deemed list in Regulation 2(1)(d)(ii) is conclusive — it is expressly rebuttable, opening with the words "unless the contrary is established". The third is collapsing the two limbs of UPSI: information that is confidential but immaterial to price is not UPSI, and information that is material but already public is equally not UPSI.

A fourth trap concerns the illustrative list in Regulation 2(1)(n). Because it is illustrative, two opposite mistakes are possible — treating the five heads as an exhaustive code (wrongly excluding novel categories of price-sensitive information), or treating anything within a head as automatically UPSI (ignoring that a published financial result is no longer unpublished). The correct approach holds both limbs of the definition firmly and uses the list only as a guide. A fifth, subtler error is to forget the six-month look-back in limb (i): an association severed well over six months before the impugned trade does not by itself satisfy the functional connected-person test, though the person may still be an insider under limb (ii) if they actually retained access to UPSI.

Finally, candidates often conflate the definitional question with the question of liability. Establishing that someone is an insider and that information is UPSI does not by itself prove a contravention; it merely opens the door to Regulations 3 and 4, where possession, communication, the legitimate-purpose carve-out and the trading-plan and inter-se transfer defences all come into play. Keeping the definitional and substantive stages distinct is the single most reliable way to write a disciplined answer.

Exam strategy: structuring a definitions answer

For judiciary and CLAT-PG answers, structure any insider-trading problem in four definitional steps before touching Regulation 3 or 4. Step one: identify the information and test it against Regulation 2(1)(n) — is it not generally available (2(1)(e)) and likely to materially affect price? Step two: identify the person and test insider status under Regulation 2(1)(g) — connected person, or in possession of/having access to UPSI? Step three: if relying on connection, run limb (i) (functional access within six months) and limb (ii) (deemed categories, with the rebuttable presumption), and for relatives apply the dependence/consultation filter in 2(1)(f). Step four: only then turn to the substantive prohibition and any defence.

Cite Chintalapati for reasonable expectation of access, Balram Garg for the limits of the relative route and the foundational-facts requirement, Hindustan Lever for what UPSI looks like, and Abhijit Rajan together with Rakesh Agrawal for the motive boundary. An answer that walks through the definitions in this order, with the right authority at each step, demonstrates exactly the doctrinal control examiners reward.