The Securities and Exchange Board of India (SEBI) on Wednesday imposed a trading ban on IndusInd Bank’s former CEO Sumant Kathpalia and four other senior executives over alleged insider trading.
In its ex-parte interim order, the markets regulator said that prima facie there was a case that these executives traded in the bank’s stock while in possession of unpublished price-sensitive information (UPSI). “The trading done by insiders, while being in possession of UPSI, caused notional monetary loss to the innocent investors who did not have free and equal access to the crucial/material information,” the order stated.
Imposing total fines of Rs 19.78 crore, SEBI wholetime member Kamlesh Chandra Varshney said that all the five accused – Kathpalia, Khurana, Sushant Sourav, Rohan Jattanna and Anil Marco Rao – will be restrained from buying, selling or dealing in securities, either directly or indirectly, in any manner whatsoever, until further orders.
“The foregoing prima facie observations contained in this order are made on the basis of the material available on record. The noticees may, within 21 days from the date of receipt of this order, file their reply/ objections, if any, to this order and may also indicate whether they desire to avail an opportunity of personal hearing on a date and time to be fixed in that regard,” the 32-page order added.
Last week, SEBI chairman Tuhin Kanta Pandey said the regulator is looking into any “egregious violations” by senior management of IndusInd Bank that was hit several accounting frauds. As a result, the bank reported a loss of Rs 2,236 crore in the fourth quarter of FY25 – the first time in 19 years last week.
The regulator’s order said that all the five executives sold shares of the bank between December 2023 and March 2025 – a delay of 15 months when the bank made public disclosure of the accounting discrepancies.
It also cited emails showing that by December 4, 2023, the top executives had internally acknowledged a “huge impact” due to these discrepancies.
For example, when the CFO provided a calculation of projected capital to risk asset ratio (CRAR) due the negative impact of discrepancies in December 17, 2023, Kathpalia responded to Khurana and the CFO saying: “This is against what we have been talking to investors. It seems we need to go to market early next year. This is very very serious. Please have these calculations on derivatives again revalidated.”
SEBI noted that from a series of such emails, it can be prima facie inferred that the MD & CEO was aware about the probable huge impact of the discrepancy in the account balances of the derivative portfolio.
The fines were calculated on the basis of the 27.5% hit that the stock price of the bank took after the disclosures were made. Khurana sold the most shares – 340,000 – avoiding a loss of Rs 14.3 crore, while Kathpalia offloaded 125,000 shares, avoiding a loss of Rs 5.2 crore.
The investigation was initiated following a significant drop in the stock price of IndusInd Bank on March 10 this year after its revelation of inconsistencies in the accounting of its derivative portfolio.
All the five have been directed to deposit the amounts into fixed deposits under SEBI’s lien. The order will remain in force until further notice.
SEBI has also clarified that the investigation is still underway and this action is based on prima facie findings. The regulator may take further steps depending on the final outcome of the probe.