• The Law Gazette

WhatsApp Leaks: Insider Trading Regulation and its compliance

The 21st century is a technologically driven one. Every message and every communication is intercepted within seconds across the globe. Today, social media is on a boom and has become an essential part living because of the ease and dismal rates of usage. Due to this growth of technology, India needed regulations to meet demand. In keeping with the demand, India enacted the Information Technology Act, 2000 and gradually came up with regulations for safe harbor, privacy intermediary protection. For the privacy protection, WhatsApp, a platform for sending and receiving messages inculcated the concept of encryption wherein no third party can intervene in the messages sent on this platform.

The problem with such encryption is that the government cannot intervene unless there is information about a wrong and to be intervened per Information Technology (Reasonable security practices and procedures and sensitive personal data or information) Rules, 2011 (herein referred to as ‘SDPI rules’). An example of one such problem is WhatsApp being used for insider trading which is an act of trading in securities done by or on behalf of an Insider for wrongful gain or a wrongful loss to the company. The SEBI (Prohibition of Insider Trading) Regulation, 2015, defines ‘Insider’[i] as a person who is connected to or possesses any unpublished price sensitive information (hereinafter referred to as UPSI). These regulations make sure that the insiders do not benefit from the sensitive information about any such concerned company and restricts them from trading while in possession of UPSI. Being encrypted, it is difficult to establish whether any information has been leaked.

The first incident of such known WhatsApp leaks[ii] was identified by Securities Exchange Board of India (hereinafter referred to as ‘SEBI’) in 2017 wherein a WhatsApp group named ‘Market Chatter’ was identified by SEBI which leaked some UPSI of nearly 12 companies and members of the group were found to be trading in it. Hence, SEBI was obliged to take necessary actions against them based on the evidence that they found during the investigation.


It was found that the sensitive information of HDFC Bank Ltd (HDFC) was leaked hours before the official announcement. SEBI initiated a preliminary examination on the circulation of UPSI through WhatsApp. It was found that the UPSI was being leaked of HDFC as the messages being circulated were close to the original numbers to that of the WhatsApp messages.

As per the examination, it was found that HDFC published its UPSI on July 24, 2017, at 12:12 pm whereas the messages were in circulation since July 21, 2017[iii]. SEBI directed HDFC to strengthen its systems so that such incidents do not repeat and further ordered HDFC to submit an internal investigation report to find out the possible suspects of the leaks of the UPSI.


The Financials of the 4th Quarter of the year 2015 were finalized by Bata India Ltd. on January 10th, 2016, and published on February 10th, 2016. Ms. Shruti Vora had received the information from Mr. Aditya Gaggar through a WhatsApp group ‘Market Info’ at 12:28 pm and again from Mr. Shailendra Mehta at 3:13 which was forwarded to Mr. Prakishit Shah on 10th February 2016. The financials were released at 3:20 pm to Bombay Stock Exchange and 3:21 pm at the National Stock Exchange on the same day of the leak. It was found that the figures were very accurate to that of the official ones published[iv].

When the matter came before the Adjudicating Officer (AO), a major argument of ‘Heard on Street Concept’ was used by the Defence, wherein unsubstantiated gossips between the market participants such as traders, market analysts, etc. form a part of market speculation, they nothing but just assumptions of these market participants, AO rejected such contention and held the accused to the insider.


The Financials of Bajaj Auto Ltd. of the 1st Quarter of 2017, was officially published on May 18th, 2017 which were found to be leaked on a WhatsApp message on 9th May 2017 by Ms. Vora who had received UPSI of Bajaj Auto Ltd. from Mr. Neeraj Kumar Agarwal. It was found to be forwarded to Sunil Kumar and Sumeet Hinduja on 9th May. A similar line of arguments was used as that of Bata Ltd. before the Adjudicating Officer. SAT imposed a penalty of 15 Lakhs[v].


It was found that the 3rd quarter of the Financial year 2016-17 was leaked before the official announcement. The financials which were officially released on 20th February at 18:02 were found to be leaked by Shruti Vora at 13:26, who had received them from Neeraj Kumar Agarwal at 12:50. SAT has held a similar ruling as that of Bajaj Auto Ltd. and imposed a penalty of 15 lakhs[vi].


Technology is dynamic and to meet this characteristic, the law needs to be amended pragmatically. SEBI (Prohibition of Insider Trading) (Amendment), 2018 was an integral step towards curbing the UPSI leakage. Also, SEBI can rely upon regulations of bodies such as the Security and Exchange Commission of USA (SEC) which implemented an Audit System, Consolidated Audit Trail which are the enforcement guidelines for insider trading and reliance of whistleblowers. Under this system, the records are easily traceable and several obligations are laid down for the insiders.

Even though SEBI can provide several rules and regulations, the enforcement of the same has to come from the Companies to protect their economic interests. Companies have previously used methods such as banning mobile phones at the workplace, the prohibition of encrypted messages, etc. to protect from leakage of the UPSI[vii]. SEBI is working hard towards the protection from insider trading and all the components of a sector must indulge in the protection of UPSI and help in the proper implementation of the law.


[i] Regulation 2(e), SEBI (Prohibition of Insider Trading) Regulation, 2015

[ii] Issuance of Directions to HDFC Bank Ltd in respect of Leakage of Unpublished Price Sensitive Information relating to its Financial through Social Networking Application- WhatsApp, Security Exchange Board of India, WTM/MPB/ISD/ 142 /2018 dated 23 February 2018

[iii] Ibid

[iv] In the matter of circulation of UPSI through WhatsApp with respect to Bata Limited, ORDER No. Order/BD/VS/2020-21/7840 dated 4 June, 2020.

[v] In the matter of circulation of unpublished price sensitive information (UPSI) through WhatsApp messages with respect to Bajaj Auto Limited, ADJUDICATION ORDER No Order/BD/VS/2020-21/7583-7584.

[vi] In the matter of circulation of unpublished price sensitive information (UPSI) through WhatsApp messages with respect to Ambuja Cements Ltd. ADJUDICATION ORDER NO. Order/BD/NR/2020-21/7591-7592, 29 April 2020.

[vii] Available at https://economictimes.indiatimes.com/news/international/uk-regulator-to-record-traders-calls-to-curb-insider-trading/articleshow/6904413.cms, last accessed on 20 July 2020 at 12:15pm.


This blog has been authored by Y. Vamsee Krishna & K.S. Manaswi who are Final Year B.A., LL.B. (Hons.) students at Damodaram Sanjivayya National Law University, Visakhapatnam.