INNOCENT TIPPEE: A NOVEL DEFENSE IN INSIDER TRADING REGULATIONS OF INDIA

Abstract

The liability of tipper and tippee forms a crucial aspect in the regime of insider trading and securities fraud, across the world. However, in India, the liability of the tippee in insider trading has traditionally been untested and no coherent framework or guidelines exist around it. Interestingly enough, SEBI recently dealt with this unexplored periphery of the insider trading norms by introducing a novel defense of ‘innocent tippee/recipient’, and started India’s journey on the development of jurisprudence on tippee liability. 

With the foregoing at this backdrop, this article dwells upon the extant legal position of a tippee and an innocent tippee as envisaged in the SEBI (Prohibition of Insider Trading) Regulations 2015, whilst focusing on the legal trajectory and evolving doctrines through various reports. The article also discusses and critically analyzes the key observations rendered by SEBI. The author appreciates the SEBI’s Adjudication Order as it adopts a doctrinal novelty, however, criticizes it on two major grounds. Firstly, it is difficult to square defence of ‘innocent tippee’ with the underlying equal access doctrine adopted in India; and secondly, as the Adjudication Order introduces an element of subjectivity to predicate liability, it will be practically very arduous to inflict liability on tippees. Lastly, the article concludes drawing a succinct comparison with the USA’s practice on tipper-tippee liability, and how the defence extended by SEBI is reminiscent of the practice espoused in the insider trading jurisprudence on tippee liability in the USA.