 "IndusInd Bank")
The Securities and Exchange Board of India (Sebi) is investigating potential insider trading violations at IndusInd Bank, where the “pre-clearance” of trades may emerge as a pivotal defence for senior executives.
Sebi is reportedly examining whether five senior IndusInd executives possessed unpublished price-sensitive information (UPSI) when they sold shares on the open market. The regulator has also requested details of trades executed by these executives.
Stock exchange disclosures reveal that between May 2023 and June 2024, IndusInd Chief Executive Officer (CEO) Sumant Kathpalia offloaded nearly 950,000 shares worth roughly Rs 134 crore, while Deputy CEO Arun Khurana sold 550,000 shares valued at Rs 82 crore. These shares were acquired through their employee stock ownership plan.
A source familiar with the matter said, “The executives obtained pre-clearance from the compliance team for these sales, which were executed in small tranches over time. Interestingly, most of these transactions resulted in a net loss. Still, Sebi’s stance remains uncertain given the sensitivity of the issue.”
The sales have sparked governance concerns, particularly as IndusInd’s stock has plummeted over 30 per cent due to losses tied to the bank’s derivatives exposure.
Pre-clearance, in the context of insider trading, refers to a process where top executives of a listed company secure approval from the compliance officer before trading the company’s securities.
Kunal Sharma, partner at Singhania & Co., said, “The Prohibition of Insider Trading Regulations offer a safe harbour through pre-scheduled trading plans. If properly structured, disclosed to the stock exchange, and spanning at least six months, these plans allow insiders to trade without incurring liability — even if they possess UPSI at the time. However, the plan must be irrevocable, formulated when the insider lacks UPSI, and not serve as a loophole to evade regulations.”
Sebi has previously penalised executives for insider trading violations. In 2024, Infosys CEO Salil Parekh settled such a case by paying a Rs 25 lakh penalty. Similarly, in the Franklin Templeton case, executives were ordered to disgorge gains after redeeming units ahead of the 2020 closure of six schemes.
Supreme Waskar, a Mumbai-based corporate lawyer, said, “Trading while in possession of UPSI could violate Sebi’s insider trading norms unless the trades fall under specific exemptions — such as off-market transfers between insiders, pre-approved trading plans, or transactions mandated by law. Without these, it’s a clear breach.”
Under Section 24 of the Sebi Act, insider trading convictions can lead to criminal penalties, including up to 10 years in prison, fines of up to Rs 25 crore, or both. The robustness of IndusInd’s pre-clearance process and adherence to regulatory exceptions will likely determine the executives’ fate.
Queries sent to Sebi and IndusInd Bank on this matter remained unanswered.
