Chinese Walls Defence to Insider Trading in India

The Indian law prohibits the offence of insider trading, which is committed when a person who “possesses” unpublished price-sensitive information (“UPSI”) relating to securities of a publicly listed company is traded in securities of such company. The prohibition is on the possession; even if UPSI is not used, it is not a defence. The Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 2015, provide various defences to the presumptive charge of insider trading. These defences aim to establish that parity of information exists between the parties to a trade. One such defence is that of Chinese walls. This paper critically examines the defence of the Chinese wall in the Indian securities market by critically analysing the regulations and related case laws. The paper explains the elements that need to be established to claim the defence of the Chinese wall and highlights the issues that might arise in proving the same in light of Indian law. The paper also discusses the paradox in the defence of the Chinese wall whereby, on the one hand, it’s an obligation to prevent insider trading and defence against insider trading on the other. The author has used foreign cases and laws due to the dearth of Indian case laws in this area. Based on the analysis, the author has also outlined the recommendations for making this defence more specific and uniform.