Revant Sinha is a final-year law student at MNLU Mumbai, and has developed a keen interest in Dispute Resolution and Securities law. Shreeja Rayane is a second-year law student at MNLU Mumbai, and is currently exploring her research interests at the intersection of Securities law, economics, and Constitutional law & policy.
Contemporary regulations in securities law work on an important premise: whether investors should have equal access to material information that can alter their investment decisions, and whether market rumours should be considered as Unpublished Price Sensitive Information (UPSI). These disclosure obligations are imposed in order to protect the integrity of the market and improve investors’ confidence.[i] In recent times, the financial journalism, social media and online dissemination of information that concerns mergers, acquisitions, investments, takeovers, etc have started to frequently enter the public domain. This raises an important question: can a company be silent when credible market rumours regarding the transactions are influencing a change in investors’ behaviour?
The issue in the Reliance Industries case, was its negotiations with Facebook Inc. regarding the investments in the Jio Platforms. While SEBI alleged that the company had an obligation to disclose the rumours regarding the negotiations, but the broader question remains that whether silence of the company may contribute to informational asymmetry.[ii] The SEBI’s allegations showcase a gradual shift from a disclosure regime on formal announcements to addressing market rumours to protect the integrity of the market.
What is material information?
The markets operate through price discovery and information incorporated into the value of the securities. The integrity of the market depends on the quality and availability of the information. The Securities law mandates that the material information must be made available to all investors fairly in order to prevent any informational advantages that can potentially alter market efficiency.
In the TSC Industries v. Northway, inc., the United States Supreme Court held that the information is considered to be material where there is a potential likelihood that a reasonable investor would consider investing in or not in a company.[iii] Materiality depends not only upon the information but also the potential of the information to have an influence on the behaviour of the investor.
Furthermore, in the present case, addressing market rumours ceases to be a mere speculation if it can potentially affect trading decisions. Once the investor changes their investment strategies based on the rumour, there is a huge concern regarding the informational asymmetry. The issue is not regarding the credibility of the rumours but rather that some investors have a better understanding regarding the accuracy of the information that can alter the prices as per Principle 16 of International Organization of Securities Commissions (IOSCO).
Disclosure as an Agency-Cost Remedy
An agency relationship is a contract, where a principal engages with an agent to act on their behalf, delegating some decision-making authority to that agent. The agent will not always act in the principal’s best interest because both parties are assumed to be rational utility-maximisers. This creates an inherent, structural divergence of interest whenever the principal’s claim is separated from the agent’s discretion. The manager-shareholder relationship becomes the main prototype of the problem.
But the markets are imperfect. Ideally, the information should flow symmetrically to all participants. In reality, the companies hold monopolistic control over internal corporate data, including unfinalised negotiations and strategic developments, which creates an informational advantage. The advantage allows companies to act in their private benefit while ignoring the cost that a stakeholder might have to pay, thereby inflating agency costs. When such information is withheld, delayed or selectively leaked, it widens the vulnerability gap between agents and principals.
In these cases, mandatory disclosure remains the primary corrective mechanism for structural agency costs. It reduces the monitoring cost which otherwise would have been borne by shareholders, limits opportunities for insider exploitation and ensures that corporate realities are accurately priced into the company’s valuation.
When the affinity of the market to information is this high, companies’ silence cannot be assumed to be a neutral stance but an active perpetuation of the agency problem, and disclosure becomes a vital agency cost corrective rather than mere administrative duty.
Whether Silence amounts to non-disclosure of information?
Securities regulation has recognised that companies, while undergoing sensitive commercial negotiations, have a legitimate interest in maintaining confidentiality, as transactions involving mergers, acquisitions, and strategic investments are uncertain and can also fail. Early disclosure can affect the negotiations, affect value, or confuse the investors regarding the completion of the negotiation. The two leading cases in US on negotiation related disclosure is important to understand in order to interpret the Indian knowledge.
The leading case remains the US Supreme Court’s case in the Basic Inc. v. Levinson, wherein the court laid out a “probability-magnitude test,” while considering whether merger negotiations can be considered a material information that requires disclosure. The court held that the materiality totally depends on the occurrence of the transaction and its importance to the company. The court in the same case declined to impose an obligation to disclose negotiations that are in process. Mandatory disclosure at an early stage can potentially harm the shareholders and impact the market expectations. This decision led to the establishment that the mere existence of negotiations does not lead to an obligation on the company to disclose the same.[iv]
Furthermore, in Chiarella v. United States case, the court clarified that there is no general duty to disclose all information that does not arise from a specific legal arrangement or regulatory requirements.[v]
Indian securities law regulation has incorporated a very similar approach, wherein Regulation 30(11) of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 mandate that a listed entity “may” confirm or deny or clarify any events or information that is reported. The usage of discretionary language in the regulation leads to the interpretation that the companies have flexibility in responding to the market rumours.
Therefore, the regulations and the interpretations of the US cases showcases that the companies possess discretion in responding to the market rumours, as the ongoing negotiations may lead to failure, and that can have adverse effects too.
What is generally available information?
There is a difference between leaked information and generally available information that was under consideration in the Future Corporate Resources v. SEBI[vi] case, where the Securities Appellate Tribunal emphasised that the information does not necessarily lose its reliability just because parts of the information exist publicly. The tribunal scrutinised whether the information is accessible to investors at large. This difference underscores that the mere circulation of the information by the media is not a fair dissemination of the information as the informational asymmetry may continue to exist.[vii]
SEBI initiated proceedings against RIL alleging the violation of Regulation 8 of the SEBI (Prevention of Insider Trading) Regulations. SEBI stated that when a credible enough information that concerns the material transactions enters the public domain and affect the behavior of the investors, the company cannot just remain silent.
The SAT upheld SEBI’s order, looking at the case with not just as the question of compliance with the Regulation 30(11) LODR but rather as a broad issue of what amounts to fair disclosure and investor protection. SAT emphasized on the credibility of the media reports and the importance of the transaction and the reaction of the market that followed post the information came into the public domain. The SC also upheld the SAT’s order.
Inconsistencies that remain
The Chiarella case rejects a “parity of information” theory, it held that there is no general duty to disclose under Rule 10b-5 merely because someone possesses material nonpublic information.
According to the US approach, the duty to “Disclose or Abstain” only arises when there is a fiduciary or similar relationship of trust and confidence between the parties of the transaction, and no such relationship existed in the Chiarella case.
However, the Reliance case runs majorly on the opposite premise. SEBI has penalised RIL for violating Principle 4 of the PIT Regulations, which requires prompt dissemination of UPSI once it has been selectively disclosed or leaked. But, it was clarified by the SAT that media leaks do not make information “generally available” unless the company itself authenticates or clarifies it. RIL in the present case was obligated to issue a clarificatory disclosure once the leak happened. Now, this obligation imposes an affirmative but relationship-independent duty on the issuer itself to correct market asymmetry. This is similar to an informational-parity theory that Chiarella explicitly rejects to adopt for individual traders. For Chiarella’s case the question is whose relationship to whom creates a duty whereas, Indian regime asks whether an information gap exists in the market and puts the burden on the cooperation to close it.
In Chiarella it is assumed that markets have tolerance towards informational asymmetry, they can function and trading on legitimate informational edge is not inherently wrongful unless a relationship based duty challenges that.
The Reliance case from the start, by contrast, treats informational asymmetry as a harm and promptly demands for remedy, which requires correction without questioning or investigating the cause.
When it comes to materiality, the case TCS Industries vs. Basic Inc, it was held that a fact is material only if there is a substantial likelihood a reasonable investor would view it as significantly altering the information that is available. Here, material is a very case specific, investor-perspective threshold applied to alleged omissions in a proxy statement.
However, In the present case, SEBI and SAT treated the information as price-sensitive essentially because it involved two large and credible corporate parties. The materiality was based on scale/ identities of the parties, media coverage and market’s price reaction rather than what a reasonable investor would find significant in this case.
Suggestions
What could work better? Firstly, A materiality test with clear codification and India-specific for determination instead of relying on ad hoc “credible and concrete” determination. This will reduce the ambiguity and give a clear understanding of what is the basis on which materiality is established.
Secondly, balancing confidentiality and disclosure becomes important for corporations to make legitimate deals. To create that balance, there is a need to recognise carve-outs for genuinely preliminary, non-binding negotiations, and in this case premature disclosures are eliminated from sabotaging legitimate deal-making.
Thirdly and most importantly to protect investors’ interests, introducing differentiated disclosure timelines based on company scale/ identity importance, which will reflect the “larger companies bear greater responsibility” principle established from the RIL ruling and establishing a public UPSI-leak reporting mechanism that will allow SEBI to intervene faster before rumours distort market pricing.
Conclusion
The RIL case highlights the need for a clear understanding of disclosure and not just what constitutes market rumours, addressing and marking a clear precedent for future identification. Although differences with foreign precedents exist, it remains a landmark case when it comes to protecting investor interest and maintaining ethical conduct in the capital market. The case has brought attention to the need to protect the conflicting interests of different stakeholders, especially the investors who are in an agent-principal relationship with the companies. The need for eliminating the subterfuge which the corporations take advantage of was recognised by SEBI. The legislature can balance the interests by bridging the inconsistencies, which can be done by evaluating different approaches from different jurisdictions and choosing what works best for India.
[i] SEBI (Prohibition of Insider Trading) Regulations, 2015, regulations 3, 4 & 8; SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, reg. 30.
[ii] [2025]257CompCas392(SEBI).
[iii] TSC Industries, Inc. v. Northway, Inc., 426 U.S. 438, 449 (1976).
[iv] Basic Inc. v. Levinson, 485 U.S. 224, 238–40 (1988).
[v] at 7.
[vi] at 12.
[vii] at 13.
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