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How Sebi fixed ₹20 cr disgorgement in IndusInd Bank insider trading case
The market regulator on Wednesday asked five senior IndusInd Bank officials, including former deputy CEO Arun Khurana and former CEO Sumant Kathpalia, to disgorge around ₹20 crore for alleged insider trading. Khurana has to disgorge ₹14.4 crore, Kathpalia ₹5.21 crore, and others amounts ranging from ₹4 lakh to ₹7 lakh. Here's how the Securities and Exchange Board of India (Sebi) arrived at these figures:
IndusInd Bank on March 10 disclosed losses in its derivative portfolio, estimating an adverse impact of 2.35 per cent of its net worth of around ₹1,530 crore (as of December 2024). The bank's stock fell 27.2 per cent the next day: from ₹901 to ₹656.
Sebi investigation
Following the disclosure and stock crash, Sebi initiated a suo motu investigation to identify trades made with unpublished price-sensitive information (UPSI) related to the derivative losses. The regulator examined records from NSE, BSE, depositories, KPMG, and IndusInd Bank, focusing on the period from September 12, 2023 to March 10, 2025.
Why September 2023? Sebi's probe revealed that following the Reserve Bank of India's Master Direction (Classification, Valuation and Operation of Investment Portfolio of Commercial Banks) on September 12, 2023, IndusInd formed an inter-departmental team by September 26 to address derivative accounting issues. At the team's first meeting on September 26, discrepancies in the accounting of derivative contracts were identified, prompting the bank to calculate unreported losses.
Who traded before the crash?
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Sebi identified individuals who were aware of the derivative loss discussions and traded IndusInd shares during the UPSI period. On December 4, 2023, Khurana sold 348,500 shares to net ₹53 crore. Kathpalia sold 125,000 shares, earning ₹19.2 crore. The three other individuals sold smaller quantities around the same time. Sebi noted that none of these individuals had submitted a trading plan for FY24 or FY25, which would have indicated pre-planned sales unrelated to UPSI.
Sebi, in a 32-page interim order, concluded that these individuals traded while aware of the UPSI, thereby avoiding significant losses. 'It would be naive to assume the noticees traded routinely while discussions on discrepancies with a substantial financial impact were ongoing,' said the order.
Calculating disgorgement amount
Sebi calculated the disgorgement based on losses avoided due to the 27.2 per cent stock price drop post-disclosure. Had the individuals sold their shares after the UPSI became public, their proceeds would have been 27.165 per cent lower, the regulator has held. Thus, Sebi multiplied the number of shares sold by each individual by this percentage to determine the loss avoided, which formed the disgorgement amount.
Kathpalia's 125,000 shares sold for ₹19.2 crore and 27.165 per cent of it comes to ₹5.21 crore.
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