Sections 194 and 195 of the Companies Act 2013: Omitted Provisions and Current Legal Position

Sections 194 and 195 of the Companies Act, 2013 originally dealt with forward dealings in securities by directors or key managerial personnel and insider trading in securities. Both provisions have been omitted with effect from 9 February 2018. The current statutory position should therefore be understood by distinguishing the historical Companies Act provisions from the securities-law framework that continues to regulate insider trading.

Current status: Section 194 and Section 195 of the Companies Act, 2013 are omitted provisions. Section 194 was omitted by section 64 and Section 195 by section 65 of the Companies (Amendment) Act, 2017, with effect from 9 February 2018.

Section 194: Prohibition on forward dealings in securities

Section 194 was titled "Prohibition on forward dealings in securities of company by director or key managerial personnel." It was part of the original Companies Act, 2013 framework dealing with specified dealings by directors and key managerial personnel in securities of the company and related companies.

The provision is no longer operative. It was omitted by section 64 of the Companies (Amendment) Act, 2017 with effect from 9 February 2018. Accordingly, Section 194 should not be presented as a presently enforceable prohibition under the Companies Act, 2013.

Section 195: Prohibition on insider trading of securities

Section 195 was titled "Prohibition on insider trading of securities." It formerly contained a Companies Act prohibition concerning insider trading.

Section 195 was omitted by section 65 of the Companies (Amendment) Act, 2017 with effect from 9 February 2018. Therefore, the current regulation of insider trading should not be described as continuing under Section 195 of the Companies Act.

What law currently regulates insider trading?

For securities governed by the securities-law framework, insider trading is principally regulated by the SEBI (Prohibition of Insider Trading) Regulations, 2015, as amended from time to time. SEBI's official regulations page identifies these regulations as the operative insider trading regulations.

In broad terms, the SEBI framework regulates communication and use of unpublished price sensitive information and trading by insiders while in possession of such information, subject to the provisions, exceptions and compliance mechanisms contained in the regulations. Companies and persons dealing with listed or proposed-to-be-listed securities should therefore consult the current SEBI regulations rather than rely on the omitted text of Sections 194 and 195.

Practical point: References to Sections 194 and 195 remain useful for historical research and for understanding the legislative development of company and securities law. For a present-day compliance question, however, the applicable SEBI regulations and other current securities-law provisions should be checked as on the relevant date.

Meaning of important terms

Director

Under Section 2(34) of the Companies Act, 2013, a "director" means a director appointed to the Board of a company.

Key managerial personnel

Section 2(51) of the Companies Act, 2013 defines "key managerial personnel" by reference to specified managerial offices and other prescribed or designated whole-time officers covered by that provision.

Insider trading

For current securities-law compliance, the relevant concepts should be read from the SEBI (Prohibition of Insider Trading) Regulations, 2015. The regulations contain defined concepts such as "insider", "connected person" and "unpublished price sensitive information", and prescribe restrictions relating to communication of such information and trading.