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    Question

    Under Section 15G of the SEBI Act, 1992, Mr. Z, a

    director of listed company ABC Limited, possesses non-public information that ABC's major customer contract will be terminated, causing significant revenue loss (expected stock decline: 30%). On Day 1, before the announcement, Z sells his 1,00,000 shares at тВ╣1,000 per share (тВ╣10 crores). On Day 5, after public announcement, the stock price crashes to тВ╣700 per share. Z avoided loss of тВ╣30 crores (тВ╣300 per share ├Ч 1,00,000 shares). SEBI imposes insider trading penalty under Section 15G. Which of the following correctly applies the penalty provision?
    A Z can be penalized only up to тВ╣1 crore (maximum limit) because this is a civil penalty, not criminal; the "gain or profit" calculation is capped at тВ╣1 crore Correct Answer Incorrect Answer
    B Z can be penalized with fine up to тВ╣90 crores because Section 15G permits penalties amounting to three times the gain or profit that accrued or would have accrued to the accused; here, Z avoided loss of тВ╣30 crores (тВ╣90 crores = 3 ├Ч тВ╣30 crores), or imprisonment up to 15 years and such fine, whichever is higher Correct Answer Incorrect Answer
    C Z's penalty is limited to the actual loss suffered by other investors; SEBI must first calculate aggregated losses to retail investors and then fix Z's penalty proportionally Correct Answer Incorrect Answer
    D Z's penalty is limited to тВ╣25 crores because Section 15G expressly caps penalties at тВ╣25 crores regardless of gain or profit calculation Correct Answer Incorrect Answer
    E Z is entitled to leniency because he avoided losses rather than making profits; Section 15G applies only to actual gains, not loss avoidance Correct Answer Incorrect Answer

    Solution

    Explanation: Section 15G of the SEBI Act, 1992 provides: "If any insider either on his own behalf or on behalf of any other person, deals in securities of a body corporate listed on any stock exchange on the basis of any unpublished price sensitive information, then, he shall be liable to pay a fine which may extend to twenty-five crore rupees or three times the amount of profits made or losses avoided, whichever is higher, or imprisonment which may extend to fifteen years or with both." The provision explicitly addresses loss avoidance: "gains or losses avoided." Z's scenario involves avoiding loss of тВ╣30 crores, which constitutes "loss avoided" under Section 15G. The calculation: (i) Gain/Profit/Loss Avoided = тВ╣30 crores; (ii) Three times = тВ╣90 crores; (iii) Comparison: тВ╣90 crores vs. тВ╣25 crores тЖТ тВ╣90 crores is higher. Therefore, Z's fine would be тВ╣90 crores OR imprisonment extending to 15 years, or both. The Supreme Court in Balram Garg v. SEBI (2022) confirmed that loss avoided is equally punishable as gain realized, recognizing that insider trading's mischief is misuse of information regardless of whether it results in profit or loss avoidance. The three-times multiplier serves a punitive purpose (deterrent) beyond compensation for loss. Thus, option (B) correctly applies Section 15G's penalty quantum for loss avoidance scenarios.

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