What is Prohibition on forward dealings in securities of company by director or key managerial personnel? What is Prohibition on insider trading of securities? Section 194 and 195 of Indian Companies Act 2013

Prohibition on forward dealings in securities of company by director or key managerial personnel and Prohibition on insider trading of securities are defined under Section 194 and 195 of Indian Companies Act 2013. Provisions under these sections are:

Section 194 of Indian Companies Act 2013 "Prohibition on forward dealings in securities of company by director or key managerial personnel"

(1) No director of a company or any of its key managerial personnel shall buy in the company, or in its holding, subsidiary or associate company -

(a) a right to call for delivery or a right to make delivery at a specified price and within a specified time, of a specified number of relevant shares or a specified amount of relevant debentures; or

 

(b) a right, as he may elect, to call for delivery or to make delivery at a specified price and within a specified time, of a specified number of relevant shares or a specified amount of relevant debentures.

Punishment for violation of Section 194 of Indian Companies Act 203 regarding prohibition on forward dealings in securities of company by director or key managerial personal

(2) If a director or any key managerial personnel of the company contravenes the provisions of sub-section (1), such director or key managerial personnel shall be punishable with imprisonment for a term which may extend to two years or with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees, or with both.

(3) Where a director or other key managerial personnel acquires any securities in contravention of sub-section (1), he shall, subject to the provisions contained in sub-section (2), be liable to surrender the same to the company and the company shall not register the securities so acquired in his name in the register, and if they are in dematerialised form, it shall inform the depository not to record such acquisition and such securities, in both the cases, shall continue to remain in the names of the transferors.

Explanation.—For the purposes of this section, ‘‘relevant shares’’ and ‘‘relevant debentures’’ mean shares and debentures of the company in which the concerned person is a whole-time director or other key managerial personnel or shares and debentures of its holding and subsidiary companies.

Section 195 of Indian Companies Act 2013 "Prohibition on insider trading of securities"

(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.

Explanation.—For the purposes of this section, -

(a) “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 counseling about procuring or communicating directly or indirectly any non-public price-sensitive information to any person;

(b) “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.

Punishment for violating section 195 of Companies Act 2013 regarding insider trading

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

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What is Prohibition on forward dealings in securities of company by director or key managerial personnel? What is Prohibition on insider trading of securities? Section 194 and 195 of Indian Companies Act 2013

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