Circumstantial evidence can prove insider trading where access to UPSI, trading patterns, and surrounding conduct support tipping inference.

A connected person employed with the merchant banker for the CRISIL open offer was treated as an insider because he had access to unpublished price sensitive information and was directly involved in the assignment, including knowledge of pricing. The record also supported an inference of tipping on circumstantial evidence: his close relationship with the tippees, concealment of that relationship, their unusual concentrated purchases during the UPSI period, immediate sales after the open offer announcement, and absence of trading in other securities together justified the conclusion that UPSI was passed on.

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Issues: (i) Whether the appellant was an insider and connected person in possession of unpublished price sensitive information in relation to the open offer for CRISIL shares. (ii) Whether the finding that the appellant tipped the tippees and violated the insider trading regulations could be sustained on circumstantial evidence and surrounding facts.

Issue (i): Whether the appellant was an insider and connected person in possession of unpublished price sensitive information in relation to the open offer for CRISIL shares.

Analysis: The appellant did not dispute that he was a connected person, that he was employed with the merchant banker engaged for the open offer, and that he had access to the unpublished price sensitive information during the relevant period. The material also showed that he was directly involved in the open offer assignment and was privy to its pricing, bringing him within the definition of an insider and a connected person under the regulatory framework.

Conclusion: The appellant was rightly treated as a connected person and an insider in possession of unpublished price sensitive information.

Issue (ii): Whether the finding that the appellant tipped the tippees and violated the insider trading regulations could be sustained on circumstantial evidence and surrounding facts.

Analysis: In the absence of direct proof, insider trading may be established from foundational facts and a logical inferential process based on the totality of circumstances. The relevant circumstances included the appellant's access to sensitive information, his close relationship with the tippees, attempts to conceal that relationship, the highly unusual trading pattern of the tippees, their concentrated purchases during the UPSI period, immediate sales after the open offer announcement, and their lack of trading in other securities. These facts supported a reasonable and probable inference that the appellant passed on the information to the tippees.

Conclusion: The finding of tipping and violation of the insider trading regulations was sustainable on circumstantial evidence.

Final Conclusion: The appeal failed because the material on record justified the inference of insider trading and supported the adjudicating officer's finding.

Ratio Decidendi: Insider trading may be proved by circumstantial evidence where proven foundational facts and surrounding conduct reasonably support an inferential conclusion that unpublished price sensitive information was passed on to tippees.

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