Sebi cracks down on former IndusInd Bank CEO, 4 top executives for alleged insider trading

The capital markets regulator, the Securities and Exchange Board of India (Sebi), in an interim order, has restricted former IndusInd Bank Ltd (IBL) chief executive officer (CEO) Sumant Kathpalia, along with four other senior executives, from the securities market for alleged insider trading.

The four others named in the Sebi order are former executive director and deputy CEO Arun Khurana, treasury operations head Sushant Sourav, GMG operations head Rohan Jathanna, and Anil Marco Rao, chief administrative officer of consumer banking operations.

"All the Noticees, viz. Noticee Nos. 1 to 5 are hereby restrained from buying, selling or dealing in securities, either directly or indirectly, in any manner whatsoever, until further orders," Sebi's interim order states.

Banks and depositories, where the noticees are holding accounts, have been directed that no debits will be made from their accounts without the permission of Sebi, except for the transfer of funds to Fixed Deposit (FD) accounts. However, credits, if any, into the accounts may be allowed.

The regulator says its suo-motu examination into the matter started on March 10, 2025, and that at "no stage during the approximately two and a half months of examination so far had it given a clean chit, contrary to reports in certain sections of the media".

The latest Sebi order follows a statement by Sebi Chairman Tuhin Kanta Pandey on May 22, 2025, in which he said the regulator was examining the matter to determine if there were any egregious violations by the bank.

Here are 6 key observations by Sebi in its interim order:

1) On March 10, 2025, IBL informed the exchanges that it had noted some discrepancies in these account balances. The bank's detailed internal review estimated an adverse impact of approximately 2.35% of the bank’s net worth as of December 2024. IBL estimated this impact due to discrepancies in the account balance of the derivative portfolio based on its detailed internal review. As of December 31, 2024, the bank’s net worth was ₹65,101.65 crore, and accordingly, the estimated impact was around ₹1,529.88 crore.

2) Sebi stated that the price-volume data showed that after the announcement on March 10, 2025, the price of the IndusInd Bank scrip fell by ₹244.65 (on a close-to-close basis) between March 10, 2025 (closing), and March 11, 2025 (closing), which is a fall of 27.165%.

3) Sumant Kathpalia had been briefed regarding the impact of the discrepancies and was aware of the probable huge impact of the discrepancies in the account balances of the derivative portfolio. "The period from December 4, 2023, to March 10, 2025 (the date of actual reporting through Exchange filing) has been considered as the UPSI (unpublished price sensitive information) period, i.e., the period during which UPSI can be said to be in existence, prima facie. However, IBL failed to classify it as UPSI until March 04, 2025."

4) Sebi says Deputy CEO Khurana sold a total quantity of 3,48,500 shares during the UPSI period while having the UPSI, and no shares were bought during the UPSI period. Kathpalia also sold 1,25,500 shares during the UPSI period. Sourav, noticee No. 3, also sold 2065 shares during the UPSI period, as late as March 06, 2025, just before the UPSI was made public on March 10, 2025.

5) Based on the prima facie evidence, Sebi found that the noticees were "insiders," and the trading done by them while being in possession of UPSI caused notional monetary loss to innocent investors who did not have free and equal access to the crucial or material information. "Indulging in insider trading activities while being an insider and being in possession of UPSI amounts to committing fraud upon innocent investors and jeopardising their interest."

6) In the instant case, during the UPSI period, no shares were purchased by the noticees, and they sold shares on different dates. "For the purpose of calculation of loss avoided, it would be fair to assume that if these shares were sold with UPSI being public, the price of the scrip would have been lower by 27.165%. Thus, the likely disgorgement amount is calculated by multiplying this impact of 27.165% on each sale of shares during the UPSI period."