Lessons from Balram Garg for SEBI's adjudicatory process

By Amrutha Desikan

Welcome to The Bridge! Regulatory orders shape markets, govern disputes, and test the rule of law, yet their quality rarely gets the scrutiny it deserves. The Bridge is TrustBridge’s window into the quasi-judicial work of India’s regulators: how they decide, and how they could decide better.

Appellate feedback about the regulator’s processes and order quality provides key insights for regulators for avenues of improvement. However, this feedback dispersed across individual decisions and rarely synthesised. For the adjudicatory processes at the Securities and Exchange Board of India (“SEBI”), systematically reading order documents from every stage in matters that have been appealed through both the Securities Appellate Tribunal (“SAT”) and the Supreme Court1 can help with this.

This piece details findings from a study of the orders leading up to the Supreme Court decision in Balram Garg v. SEBI,2 a widely discussed case involving allegations of insider trading in the scrip of PC Jeweller Ltd. By tracing the SEBI Order,3 the SAT,4 and Supreme Court decisions, we identify specific failures in the originating order, highlighting system-level improvements for SEBI’s adjudicatory process.

PC Jeweller Ltd. (“PCJ”) is a leading organised retail jeweller in India. Between April and July 2018, it made two corporate announcements: a board-approved share buyback on 10 May, and its withdrawal on 13 July after State Bank of India refused a no-objection certificate.

During this period, Balram Garg was the Managing Director of PCJ (Noticee 5). He lived in the same building (though a different unit) as his nephews, Sachin Gupta (Noticee 2) and Amit Garg (Noticee 4), and Shivani Gupta (Noticee 1, Sachin’s wife). Shortly before this, Amit Garg had a controlling interest in Quick Developers Pvt. Ltd. (Noticee 3).

SEBI initiated an investigation against these parties (collectively, the “Noticees”), on allegations of insider trading in PCJ’s scrip, treating the Noticees’ knowledge of the future announcements as Unpublished Price Sensitive Information (“UPSI”). It charged Noticees 1-4 with trading during this window while in possession of inside information, and Noticee 5 with communicating it.

The SEBI Order concluded all Noticees engaged in insider trading based entirely on circumstantial evidence: chiefly their shared address, family ties, trading patterns, and bank transactions. In their arguments, the Noticees pointed to a ‘Family Arrangement’ document as evidence that their family ties had broken down. Dismissing the ‘Family Arrangement’ document as a mere internal business division rather than proof of estranged ties, SEBI assumed family proximity and inferred they must have shared and acted upon the UPSI.

SAT affirmed SEBI’s conclusion without material reasoning. Relying entirely on SEBI’s trading and bank analyses, it concluded on a “preponderance of probability” that UPSI had been shared within the family, despite acknowledging there was “no direct evidence as to who had disseminated” it.

The Supreme Court set aside the orders of both lower fora. The inferential chain, it held, broke at its starting point: the foundational facts required to raise any presumption of communication had never been established. This judgment points out four specific reasoning failures in the SEBI order:

Relying on evidence not in the show-cause notice. The SEBI Order relied on rent transactions between Noticee 2 and PCJ. Noticee 2 was also a nominee to PCJ’s former Chairperson’s demat account. However, these facts were not included in the show cause notice (“SCN”). The Supreme Court cited Tarlochan Dev Sharma v. State of Punjab5 to hold that an order cannot be founded on grounds not put before the noticee, as this deprives the noticee of the opportunity to defend themselves, violating natural justice principles.6

Sufficiency of evidence. The SEBI Order had drawn inferences from trading patterns and bank statements, instead of identifying actual instruments of communication, to prove that UPSI had been communicated. The Supreme Court held that without material showing frequent communication (letters, emails, witnesses etc.), no presumption of communication could arise.7

Erroneous citation of precedent. The Noticees argued that Chintalapati Srinivasa Raju v. SEBI8 precluded any finding of insider trading based on family ties alone. To support its contrary conclusion, SEBI cited Kishore R. Ajmera v. SEBI9 (referenced within Chintalapati) for the proposition that circumstantial evidence suffices. The Supreme Court rejected this because Kishore Ajmera concerned Fraudulent and Unfair Trade Practices rather than insider trading, and the law was already settled by Chintalapati. SEBI misquoted the very case the Noticees correctly cited, extracting a subsidiary reference while ignoring its actual holding.

Shifting the burden of proof. SEBI unlawfully shifted the burden onto the Noticees to prove their estrangement. SAT upheld the SEBI Order’s reasoning on the ground that the Noticees were unable to demonstrate the fact of their estrangement, concluding that they must have communicated with each other.10 Rejecting this, the Supreme Court held that SAT’s approach “turns the SEBI Act on its head,” placing the burden of proving a breakdown of ties on the Appellants while ignoring that the onus was actually on SEBI to prove possession of or access to UPSI.

The appellate lifecycle in Balram Garg has several points of feedback for the adjudicatory process and for order writing at SEBI. Each of the Supreme Court’s critiques can be organised into insights. Table 1 summarises the Supreme Court’s critique of the SEBI Order and the corresponding feedback for SEBI’s adjudicatory process.

Relying on evidence not in the SCN. SEBI’s analysis must be confined to the grounds put to the noticee in the show-cause notice. This is a requirement of natural justice, not just good order writing. The SCN is downstream of the investigation report (“IR”), and the IR must contain every piece of relevant information that grounds the SCN. Investigating officers must examine its completeness rigorously before it proceeds further. At the adjudication stage, the adjudicating officer must separately verify that the evidence and facts being relied upon were disclosed in the SCN and that noticees had a meaningful opportunity to respond to them. These are two distinct checkpoints (one at investigation, one at adjudication) and both must hold. Balram Garg surfaces the second checkpoint; the first is equally important, even if it did not arise here. This requires robustness and co-ordination throughout the investigation-adjudication axis at SEBI.

Sufficiency of evidence. Balram Garg establishes that when relying on circumstantial evidence, SEBI must logically stress-test each inferential link before drawing conclusions from it. Per the Supreme Court, communication of UPSI can only be proved through cogent evidence (call records, messages, emails) and cannot be inferred from trading patterns alone. SEBI should codify evidentiary standards like this in a procedural manual: one that sets out internal rules of evidence, steps of proceedings, and settled questions of law, made publicly available to provide a standing reference and improve consistency.

Erroneous citation of precedent. One of the more serious failures in the SEBI order was the misapplication of precedent. The order extracted a single paragraph from Chintalapati Srinivasa Raju to support its conclusion, while ignoring the holding that immediately followed, which explicitly rejected the inferential link SEBI was relying on. Adjudicators must therefore read cited judgments in full and not selectively rely on passages that support their conclusions while overlooking those that constrain them. LLMs offer a practical tool here: they can summarise precedential judgments, identify the ratio, and verify whether an order’s characterisation of a case matches its actual holding.

Burden of proof. According to the Supreme Court, shifting the burden to disprove their insider relationship onto the Noticees was a fundamental error of substantive law. It was SEBI which was legally required to back its allegation up with evidence and reasoning. While appellate courts exist to correct such misapplications of the law, SEBI can curb their recurrence by supporting their adjudicators through targeted and frequent legal training, better research resources, and an expanded procedural manual codifying settled statutory standards.

Systematically reading appellate decisions helps identify systemic gaps and reduce appeals. Because complete lifecycle datasets are currently non-public and hard to map, SEBI should maintain a structured database linking orders to their appellate outcomes to loop feedback back into its processes. This feedback should be codified into a public procedural manual covering proceedings, evidentiary standards, and record-keeping to standardise institutional adjudication and help stakeholders navigate the system. SEBI should build a precedent bank supported by responsibly governed LLMs to verify case usage, ensuring AI aids, rather than replaces, human adjudicatory reasoning. Finally, adjudicators require continuous access to legal resources to prevent errors of law. Our synthesis of appellate feedback in the SEBI Lifecycle Datasets aims to provide precisely this support.

- The author is a researcher at TrustBridge, and would like to thank Pratik Datta, Bhavin Patel, and Renuka Sane for their feedback and suggestions.

CITATION

Amrutha Desikan, 2026. “Lessons from Balram Garg for SEBI’s adjudicatory process”, The Bridge, TrustBridge Rule of Law Foundation

Thanks for reading The Bridge! Subscribe for free to receive new posts and support our work.

Website | LinkedIn | YouTube

Balram Garg v. Securities and Exchange Board of India [2022] 4 S.C.R. 888.

Balram Garg v. Securities and Exchange Board of India SAT Appeal No. 375 of 2021.

Chintalapati Srinivasa Raju v. SEBI (2018) 7 SCC 443.

Final Order in the matter of Insider Trading in the scrip of PC Jeweller Ltd, (SEBI Order, 11 May 2021) WTM/AB/IVD/ID6/11662/2021-22.

Kishore R. Ajmera v. Securities and Exchange Board of India (2016) 6 SCC 368.

Shivani Gupta and ors. v. Securities and Exchange Board of India SAT Appeal No. Appeal No. 376 of 2021.

Tarlochan Dev Sharma v. State of Punjab (2001) 6 SCC 260.