Casting a Wider Net: SEBI's December 2024 Redefinition of 'Connected Person' and 'Relative'

Source: Securities and Exchange Board of India (Prohibition of Insider Trading) (Third Amendment) Regulations, 2024 — SEBI/LAD-NRO/GN/2024/215, notified in the Gazette of India on December 4, 2024, effective the same day.

Why this amendment matters

Everything in the PIT Regulations — disclosure, pre-clearance, contra-trade, trading window — ultimately depends on a threshold question: is this person a "connected person"? Until this amendment, that definition leaned heavily on formal relationships — directorship, employment, a defined contractual role. This amendment rewrites the test to focus on access, explicitly including "frequent communication" as a basis for connection, and separately overhauls who counts as a "relative" for the deemed-connected-person provisions. Both changes broaden the regulatory net considerably, and both were live legal questions in Indian courts around the same time (see our companion piece on Kunal Kashyap v. SEBI).

Change 1: "Connected person" now explicitly includes frequent communication and household sharing

What changed: Regulation 2(1)(d)(i) is substituted with new language: a person is connected if, in the six months prior to the act in question, they were associated with the company in any capacity, directly or indirectly — explicitly including "by reason of frequent communication with its officers," any contractual/fiduciary/employment relationship, being a director/officer/employee, or holding any professional or business relationship (temporary or permanent) — provided that association allows access (or could reasonably be expected to allow access) to UPSI.

Two new categories of "deemed connected person" were also added to sub-clause (ii): (k) a firm, or its partner or employee, where a connected person under (i) is also a partner; and (l) a person sharing a household or residence with a connected person under (i).

What SEBI intends: "Frequent communication" being named explicitly is the headline change. Previously, establishing someone as a connected person generally meant pointing to a formal role — director, employee, auditor, banker. Now, a pattern of frequent communication with company officers is itself an express basis for connection, provided it's the kind of association that plausibly gives UPSI access. This significantly lowers the evidentiary bar compared to needing to prove a formal relationship existed. Combined with the household-sharing addition — which catches flatmates, live-in partners, and other household members regardless of blood or marital relationship — SEBI is explicitly targeting the informal networks through which UPSI most often actually leaks, rather than the formal org-chart relationships the older definition was built around.

Practical takeaway: If your insider-trading training has historically focused on "who reports to whom" and "who has a contract with the company," it needs to expand to cover informal but frequent contact patterns — a company officer's habitual calls or messages with an external party can now, by itself, support connected-person status for that party. If you're assessing whether someone might be a connected person for compliance purposes (e.g., before granting UPSI access, or in an internal investigation), communication frequency and cohabitation are now squarely relevant facts to gather, not incidental color.

Change 2: "Immediate relative" is replaced by a broader, more precisely defined "relative"

What changed: The regulations previously used "immediate relative" throughout (see, for instance, Q57 in our General FAQ article, on the rebuttable presumption that a spouse is an immediate relative). This amendment substitutes "relative" everywhere the term "immediate relative" previously appeared, and inserts a new, explicit definition at clause (hc): spouse; parent of the person and parent of the person's spouse; sibling of the person and sibling of the person's spouse; child of the person and child of the person's spouse; and the spouses of those siblings and children.

Critically, the accompanying regulatory Note states plainly: "It is intended that the relatives of a 'connected person' too become connected persons for the purpose of these regulations. It is a rebuttable presumption that a connected person had UPSI."

What SEBI intends: Two things happened at once here. First, the relative net got wider — it now explicitly reaches a spouse's parents and siblings, and the spouses of siblings and children, categories that weren't as clearly captured before. Second, and more importantly, the regulation now states outright that relatives of connected persons are themselves connected persons, with a rebuttable presumption of UPSI possession attaching to that status. This is a codification, not a loosening — it puts in the text of the regulation what had previously been closer to an inference courts and SEBI drew case by case (see our discussion of Q57's spouse-presumption FAQ, which was itself only about spouses specifically).

Practical takeaway: Broaden your immediate-relative disclosure and monitoring intake forms to the new "relative" categories — specifically, add spouse's parents, spouse's siblings, and the spouses of a designated person's own siblings and children, none of which were unambiguously "immediate relative" territory before. Since the presumption is rebuttable, keep a clear process for a designated person to formally document a rebuttal (e.g., an estranged or long-separated relative) rather than relying on informal assurances.

Change 3: The burden of proof on "insider" status is now spelled out in the regulation itself

A quieter but useful change: the Note under the "insider" definition (clause (g)) was substituted to explicitly state that the onus of showing a person was in possession of or had access to UPSI at the time of trading sits with "the person leveling the charge" — after which the burden shifts to the trader to demonstrate an exonerating circumstance (no possession, no trade, no access, or a covered exemption). This burden-shifting sequence had been argued in litigation before; it's now regulatory text rather than inference.

Bottom line for your compliance checklist

• Extend your connected-person risk assessment beyond formal roles to informal but frequent communication patterns and household/residence sharing.
• Update disclosure/monitoring intake to the new "relative" definition — spouse's parents and siblings, and spouses of a DP's own siblings and children.
• Treat every relative of an established connected person as themselves a connected person by default, with a documented process for any rebuttal.
• Be aware that the initial burden to show UPSI possession/access sits with whoever alleges it — useful context both for building your own case files in internal investigations and for understanding SEBI's evidentiary approach in enforcement matters.

This article interprets SEBI's published amendment regulation for general informational purposes and reflects our reading of the official Gazette notification as of the date of publication. It is not legal advice and should not be treated as a substitute for the actual text of the PIT Regulations or advice from a qualified professional. Readers should independently verify current requirements against SEBI's website before acting.