Insider Trading - Meaning and Provisions of Companies Act' 2013 | Company Law Notes for BCom, BBA and MBA | B.Com Notes CBCS

Insider Trading 

Meaning and Provisions under the Companies Act 2013

Company Law Notes for BCom, BBA and MBA

 Insider trading Meaning:

Insider trading is defined as an unfair practice in which trading in securities of the company is done by the key personnel of the company who have access to the non public information which can be crucial for making investment decisions. Here key personnel includes key employees or director of the company who have access to the important information about the about which is not available in public domain. In simple words insider trading means trading in securities of the company by the company’s key officers on the basis of sensitive non public information.

Meaning of Insider trading According to the Companies Act 2013

“Insider trading” means

i) An act of subscribing, buying, selling, dealing or agreeing to subscribe, buy, sell or deal in any securities by any director or key managerial personnel or any other officer of a company either as principal or agent if such director or key managerial personnel 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

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

Prohibition on insider trading of securities – Sec 195 of the Companies Act’ 2013

Insider trading is considered to be unfair practice and it is prohibited by the Company’s Act 2013. Provisions of the Company’s Act relating to insider trading are given below:

(1) No person including any director or key managerial personnel of a company shall enter into insider trading: Provided that nothing contained in this sub-section shall apply to any communication required in the ordinary course of business or profession or employment or under any law.

 (2) If any person contravenes the provisions of this section, he shall be punishable with imprisonment for a term which may extend to five (5) years or with fine which shall not be less than five lakh (Rs. 5, 00,000) rupees but which may extend to twenty-five crore (Rs. 25 Crores) rupees or three times the amount of profits made out of insider trading, whichever is higher, or with both.