1. Meaning of UPSI and Wall-Crossing

Unpublished Price Sensitive Information (UPSI)

Under Regulation 2(1)(n) of the SEBI (Prohibition of Insider Trading) Regulations, 2015, UPSI means information which:

Is not generally available, and

Upon becoming generally available, is likely to materially affect the price of securities

Examples include:

Financial results

Dividends

Change in capital structure

Mergers, acquisitions, takeovers

Key managerial changes

Wall-Crossing

Wall-crossing refers to the controlled and lawful sharing of UPSI with specific persons (investors, advisors, analysts, lenders, strategic partners) after:

Obtaining consent

Recording the information shared

Ensuring confidentiality and trading restrictions

It is an exception to the general prohibition on communication of UPSI.

2. Statutory Framework Governing UPSI Handling and Wall-Crossing

Relevant Provisions:

Regulation 3(1) – Prohibition on communication of UPSI

Regulation 3(2) – Permitted communication for legitimate purposes

Regulation 3(3) – Obligation to ensure confidentiality

Regulation 9 – Code of Conduct

Schedule A & B – UPSI handling and compliance mechanisms

SEBI recognises “legitimate purpose” and controlled dissemination through wall-crossing.

3. Principles Governing UPSI Handling

Core Compliance Principles:

Need-to-know basis

Structured Digital Database (SDD) maintenance

Confidentiality agreements

Chinese walls between departments

Board-approved policies

Failure in UPSI handling often leads to strict regulatory liability.

4. Wall-Crossing: Process and Compliance Requirements

Key Steps:

Identification of UPSI

Determination of “legitimate purpose”

Prior approval from Compliance Officer

Execution of confidentiality / non-trading undertakings

Recording in SDD (name, PAN, purpose, date)

Trading restrictions until information becomes generally available

Wall-crossed persons are treated as temporary insiders.

5. Legal Position on Wall-Crossing vs Insider Trading

Wall-crossing is not a defence if safeguards are absent

Improper dissemination attracts penalties even without trading

Trading by wall-crossed persons is presumed tainted

SEBI places the burden of compliance on the company and its officers.

6. Case Laws on UPSI Handling and Wall-Crossing

1. Hindustan Lever Ltd. v. SEBI

Supreme Court held that possession of UPSI is sufficient to attract insider trading liability.

Emphasised careful handling of confidential corporate information.

2. Rakesh Agrawal v. SEBI

SAT recognised fiduciary duties of insiders in handling UPSI.

Highlighted that sharing UPSI must be strictly limited and justified.

3. SEBI v. Kishore R. Ajmera

Supreme Court ruled that insider trading can be established through circumstantial evidence.

Improper wall-crossing can form strong circumstantial proof.

4. Chandrakala v. SEBI

SAT clarified that mere possession of UPSI triggers prohibition, regardless of intent.

Reinforces the need for stringent controls post wall-crossing.

5. DSQ Holdings Ltd. v. SEBI

Held that companies must implement robust internal controls to prevent leakage of UPSI.

Weak information barriers aggravated regulatory liability.

6. Cabot International Capital Corporation v. SEBI

SAT stressed the importance of preventive compliance mechanisms.

Failure to control dissemination of sensitive information was held against the company.

7. SEBI v. Kanaiyalal Baldevbhai Patel

Supreme Court held that mens rea is not required for civil penalties.

Even procedural lapses in UPSI handling can attract sanctions.

7. Consequences of Improper UPSI Handling or Wall-Crossing

Violations may result in:

Monetary penalties under SEBI Act

Disgorgement of gains

Trading bans and market access restrictions

Personal liability of directors and compliance officers

Reputational harm

SEBI treats UPSI leakage as a serious governance failure.

8. Role of Board and Compliance Officer

Board Responsibilities:

Approve UPSI and wall-crossing policies

Monitor compliance reports

Ensure adequate information barriers

Compliance Officer Duties:

Identify UPSI

Approve wall-crossing

Maintain SDD

Monitor post-sharing trading behaviour

Report violations

9. Best Practices for UPSI Handling and Wall-Crossing

Written “legitimate purpose” policy

Pre-approved wall-crossing templates

Automated SDD systems

Regular insider trading training

Periodic audits of information flow

10. Conclusion

UPSI handling and wall-crossing rules form the core architecture of insider trading compliance under Indian securities law. Courts and regulators have consistently held that:

UPSI must be shared only on a strict need-to-know basis

Wall-crossing is permitted but heavily regulated

Procedural lapses can trigger liability even without intent

Effective UPSI governance protects market integrity, corporate reputation, and regulatory trust.