Insider trading can be defined as the malpractice of trading in the securities of a company based on certain information that is unknown to rest of the public, but such information would affect the manner of trading in the securities of that company. It is a situation when insiders of a company such as directors, managers and other employees of the company have knowledge of the strategic ways of the company, including important financial and non-financial affairs, and they use such information to their benefit by trading in the securities of the company. Such valuable information that affects the investment decisions of a person is known as ‘price sensitive information’. When such information is unpublished it is known as ‘unpublished price sensitive information’ (UPSI) and the communication of such UPSI as well as dealing of securities based on such UPSI is punishable and leads to the offence of insider trading. Due diligence is a process by which the acquirer of shares in a company, conducts an enquiry into the affairs of the target company, before it decides to invest in the company. Such a process is required because there involves an imminent risk in investing in a company which can be mitigated to an extent by means of such due diligence. It will help the acquirer to access the true value of the shares that he proposes to acquire.However, in case of due diligence to be conducted in a listed company, the same will be under certain constraints due to the regulatory barriers of the insider trading regime. Due diligence in a listed company may lead to information asymmetry among the potential investors, which is against the goal of the insider trading regime. It is this disparity between the need for due diligence and the information asymmetry that the author discusses in the study.In India, the Securities Exchange Board of India (SEBI) is the regulatory body that governs the insider trading regime. SEBI (Prohibition of Insider Trading) Regulations, 2015 (hereinafter referred as the PIT Regulations) is the regulation that governs insider trading in the securities market. Though there were regulations prohibiting insider trading since 1992, the same was repealed due to its ineffective framework.The Indian jurisdiction similar to the UK and Singapore jurisdiction, divides the offence of insider trading into two offences. The first offence is that of communication of price sensitive information i.e. an insider will be held liable for disclosure of information except in the course of a person’s employment, profession or duties. The management of a company may be held liable for communication of such information to another person. The second offence is wherein an insider deals or trades in the securities of the company based on such information or while in possession of such information. If the acquirer during due diligence acquires such information and deals in the securities of the company before disclosing such information to the public, it will amount to insider trading. This makes the process of due diligence without attracting insider trading complicated. Under the parity of information theory, the regulation does not look into whether the person intended to violate the law. Thus, the wrong of insider trading is attributed strict liability and does not look at the state of mind of a person. The US jurisdiction however does not accept the parity of information theory and considers the aspect of state of mind or the intent to commit the act of insider trading. The Securities Appellate Tribunal while hearing appeals from SEBI has emphasised that a person in possession of UPSI is presumed to have traded on the basis of such information unless the contrary is proved. The strict use of the parity of information theory would render it impossible to conduct due diligence in listed companies. In order to allow such due diligence the theory has been diluted to form the limited parity of information of theory, wherein selected disclosures can be made on fulfilment of certain conditions.The limited parity of information allows disclosure and due diligence only on fulfilment of two conditions mainly,1. The acquirer who receives UPSI is bound by confidentiality obligations- The first is the requirement of a confidentiality agreement that prohibits the acquirer who receives information from disclosing the same to another person. The agreement can be oral or written, it is better to enter into detailed written agreements. Such confidential agreements must also include ‘stand still’ obligations of non- use and non- trading. Non- use obligations are those whereby the acquirer agrees that information gained by due diligence shall not be used for any other purpose other than the said transaction. Non –trading obligation is one wherein the acquirer agrees not to trade in the securities while in possession of such information but only after publishing of such information to the public.2. The disclosure of inside information during due diligence is in the best interest of the company- The Companies Act, 2013 imposes on the directors of the company a duty to act in the best interest of the company and its shareholders. The same duty is attached even at the time of disclosing information to the acquirer. The management must be of the opinion that such share acquisition and disclosure of information is in the best interest of the company.The above discussion pertains to situations wherein share acquisition was conducted successfully after due diligence. However, in most cases after due diligence, the transactions are delayed or aborted. In such a case it is pertinent to know how the insider information has to be treated. While essential for facilitating commercial transactions and capital raising, providing UPSI to potential investors as part of due diligence access is fraught with difficulties. Investors need to be told that they are being provided with UPSI, the expected time period during which they cannot trade, and the cleansing strategy if the transaction does not take place.