SEBI bars ex-IndusInd Bank CEO Sumant Kathpalia from securities market over insider trading

The Securities and Exchange Board of India (SEBI) on May 28 restrained IndusInd Bank’s former managing director and CEO, Sumant Kathpalia, former executive director and deputy CEO Arun Khurana, and three other senior officials from accessing the securities markets for allegedly engaging in insider trading in the bank’s shares..The interim ex-parte order was passed by SEBI Whole Time Member Kamlesh C Varshney following a suo moto preliminary examination which found that the five officials traded in IndusInd Bank’s scrip while in possession of unpublished price sensitive information (UPSI) related to material discrepancies in the accounting of the bank’s derivative portfolio.SEBI also ordered for impounding a total of ₹19.78 crore — the estimated amount of loss the five officials allegedly avoided by selling their holdings before the information was disclosed to the public. According to SEBI, the trading occurred between December 4, 2023 and March 10, 2025 — a period during which the regulator believes the individuals were in possession of UPSI. IndusInd Bank disclosed the accounting discrepancies on March 10, 2025, after market hours, triggering a 27.165% fall in the stock price the following day..Kathpalia and Khurana resigned in April 2025 weeks after the bank’s March disclosure that an internal review - prompted by the Reserve Bank of India’s 2023 Master Direction on Derivatives - had revealed discrepancies in the classification of other assets and other liabilities in the bank’s derivatives portfolio. The bank stated the negative impact on its net worth as of December 2024 was estimated at ₹1,529.88 crore (2.35 percent of net worth), and that it had appointed an external agency — later revealed to be KPMG — to validate the findings..SEBI’s investigation found that senior executives of the bank including the noticees were aware of the discrepancies as early as September 2023 and had internally estimated the impact by December. .SEBI noted that the information about the derivative discrepancies was never disclosed publicly until March 10, 2025 and was not classified as UPSI in the bank’s Structured Digital Database until March 4, 2025 despite senior management having knowledge of its potential materiality as early as December 2023.“It would be naive to assume that Noticees traded in the scrip of IBL in a routine manner, when discussions were being carried out related to huge impact on the financials due to incorrect accounting treatment of derivative transactions, and Noticees were aware of the same,” SEBI said in its order.During the UPSI period, Khurana sold 3,48,500 shares, avoiding a loss estimated at ₹14.39 crore. Kathpalia sold 1,25,000 shares, avoiding a loss of ₹5.20 crore. The remaining noticees — Sushant Sourav (Head- Treasury Operations),Rohan Jathanna (Head- GMG Operations), and Anil Marco Rao (Chief Administrative Officer (CAO)- Consumer Banking Operations) — sold smaller volumes and avoided losses ranging from ₹3.94 lakh to ₹7.14 lakh. None of them purchased any shares during the period. SEBI confirmed that no pre-approved trading plans were submitted by any of the officials for FY2023–24 or FY2024–25.“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 owing to it not being disclosed to them as and when it became available to the Company. It also has the effect of interfering with the development of securities market, as investors tend to lose faith in the securities market, if such violations go unpunished,” the order said..As part of the interim orders, SEBI directed the five individuals to deposit the impounded amount into fixed deposit accounts with a lien in favour of SEBI. Until this is done, they are barred from accessing the securities market, and debits from their bank and demat accounts require SEBI’s prior approval. They must also submit a full inventory of their assets, including bank accounts, shareholdings and significant company interests, within 15 days. Some restrictions will be lifted once the disgorgement amount is deposited though trading in IndusInd Bank shares will remain prohibited. The officials are permitted to square off existing derivative positions within three months or until contract expiry. SEBI clarified that the investigation, launched on March 10, 2025 is ongoing and further enforcement action may follow. The noticees have 21 days to file their responses and request a personal hearing..[Read Order]