Companies Act 2013 - Prohibition on insider trading of securities

According to Companies Act, 2013, no person including any director or key managerial personnel (KMP) of a company shall enter into insider trading. 

However, as usual, nothing contained shall apply to any communication required in the ordinary course of business or profession or employment or under any law.

Meaning of ‘insider trading’-

a) An act of subscribing, buying, selling, dealing or agreeing to subscribe, buy, sell or deal in any securities by any director or KMP or any other officer of a company either as principal or agent if such director or KMP or any other officer of the company is reasonably expected to have access to any non-public price sensitive information in respect of securities of company, or

b) An act of counselling about, procuring or communicating directly or indirectly any non-public price sensitive information to any person.

Price Sensitive Information refers to any information which relates, directly or indirectly, to a company and which if published is likely to materially affect the price of securities of the company.

Punishment for contravention-

·       Imprisonment upto 5 years; or

·       Fine: Minimum: Rs. 5 Lakh; Maximum: Rs. 25 Crore or 3 times the amount of profits made out of insider trading, whichever is higher; or

·       Both.

Despite the prior existence of a specific regulation on insider trading, the new provision has been inserted in the 2013 Act for completeness. However, this has led to some confusion as expressions used in the provision such as “insider trading” are defined differently from those seen in the specific regulation. Moreover, unlike the specific regulation for listed Indian companies, under the 2013 Act, the provision extends to public unlisted companies as well.

[Contributed by Shruti Agarwal]