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Business Laws and Ethics · Key Managerial Personnel

Prohibition on Forward Dealings in Company Securities (Section 194)

Updated 10 October 2026 · Fact-checked

Section 194 of the Companies Act, 2013 once barred directors and KMP from forward dealings in the securities of their company, its holding, subsidiary or associate. The Companies (Amendment) Act, 2017 omitted it with effect from 9 February 2018. So today there is no Section 194 prohibition or penalty to apply.

Understand Prohibition on Forward Dealings in Company Securities

A forward dealing means a contract today to buy or sell securities at a fixed price on a later date. Under the original Companies Act, 2013, Section 194 stopped a director or key managerial personnel (KMP) from entering such contracts in the securities of their own company, or of its holding, subsidiary or associate company. The aim was to stop insiders from speculating on the company's shares using the knowledge they have.

The key fact for your exam is this: the official text of Section 194 now reads only "Omitted by the Companies (Amendment) Act, 2017 (1 of 2018), s. 64 (w.e.f. 9-2-2018)". The section heading survives in the Act, but there is no operative rule under it. So the bar on forward dealings and the penalty attached to it no longer exist under the Companies Act.

Many guides and older notes still describe Section 194 as if it were in force. Do not copy them. If a question says "as per Section 194", first check whether it is testing the old law or the current law. For the current law, say the section is omitted.

The subject has not vanished from the Act. Section 170 still requires every company to keep a register of its directors and KMP. That register must include the securities each of them holds in the company, its holding company, its subsidiary, a subsidiary of its holding company, or its associate companies. This is where the Act now tracks insider shareholdings.

Also note what Section 167 does not say. The grounds on which a director's office becomes vacant (disqualification, absence from all Board meetings for twelve months, breach of Section 184 on interest in contracts, and so on) do not list forward dealing. Do not invent that link.

Key rules to remember

Status of Section 194
Section 194 = omitted by Companies (Amendment) Act, 2017, w.e.f. 9-2-2018
No prohibition and no penalty under this section now. State this first in any answer.
Old scope (for history only)
Director or KMP + forward dealing + securities of company / holding / subsidiary / associate
This was the idea behind the old bar. Use it only to explain what was removed.
Register of directors and KMP (Section 170(1))
Register at registered office, including securities held in company, holding, subsidiary, subsidiary of holding, associate
This is the live provision on insider shareholding.
Return to Registrar (Section 170(2))
File within 30 days of appointment and within 30 days of any change
Applies to every director and KMP.

How to solve Prohibition on Forward Dealings in Company Securities questions

Use this method for any question that mentions forward dealings by a director or KMP.

  1. 1Identify what is asked: the old Section 194 rule, or what the law is now.
  2. 2State that Section 194 has been omitted by the Companies (Amendment) Act, 2017, effective 9 February 2018.
  3. 3If the question needs it, explain in one line what forward dealing means: a contract now to buy or sell securities at a fixed price on a future date.
  4. 4Say that no offence or penalty arises under Section 194 now, because the section has no operative text.
  5. 5Bring in the live provision: Section 170 register of directors and KMP with their securities, and the 30-day return.
  6. 6Add that other laws, such as securities market regulations, may separately apply to insider dealing. Do not quote their sections unless you are sure.
  7. 7Conclude clearly with your answer to the facts given.

Quickest way: Omitted, then Section 170

When to use it: For MCQs and short notes where time is tight.

  1. Spot the words "forward dealing" or "Section 194".
  2. Write or tick: omitted w.e.f. 9-2-2018.
  3. Reject any option that gives a current penalty or prohibition under Section 194.
  4. If the option set mentions a register of securities held, link it to Section 170.

Common mistakes in Prohibition on Forward Dealings in Company Securities

  • Writing that Section 194 currently prohibits forward dealings and quoting a penalty.

    Older notes and books were written before the 2018 omission.

    Fix: Always check the status. Say the section was omitted w.e.f. 9-2-2018 and no penalty applies under it.

  • Saying the Companies Act has no provision at all on directors' securities.

    Students over-correct after learning the omission.

    Fix: Mention Section 170: the register must record the securities each director and KMP holds in the company and related companies.

  • Treating forward dealing as a ground for vacation of a director's office under Section 167.

    Students link any director breach to vacation of office.

    Fix: Section 167(1) lists specific grounds, and forward dealing is not one of them. Learn the list instead of guessing.

  • Mixing up forward dealing with ordinary buying or selling of shares.

    Both involve securities.

    Fix: Forward dealing is a contract for delivery or purchase at a fixed price at a future time, not an immediate trade.

  • Stating the 30-day return period as 60 days or as running only from appointment.

    Confusion with other filing periods.

    Fix: Section 170(2): 30 days from appointment and 30 days from any change.

Worked examples

Example 1

Rohit Mehta, a director of Sundaram Textiles Ltd, enters into a contract to buy 5,000 shares of the company at a fixed price, with delivery after three months. A student says he has violated Section 194 and must be punished. Examine.

Show the solution
  1. The contract is a forward dealing in the securities of Rohit's own company.
  2. Section 194 once prohibited such dealing by directors and KMP.
  3. But Section 194 has been omitted by the Companies (Amendment) Act, 2017, with effect from 9 February 2018.
  4. So there is no Section 194 prohibition or penalty to apply to these facts.
  5. Rohit's holdings must still be recorded in the register under Section 170, and any change reported to the Registrar within 30 days.
  6. Other laws on insider dealing may apply separately, but they are outside Section 194.

Answer: Rohit has not violated Section 194, because the section is omitted w.e.f. 9-2-2018. The Section 170 register and filing duties continue.

Example 2

Which statement is correct? (A) Section 194 bars forward dealings and prescribes imprisonment today. (B) Section 194 has been omitted w.e.f. 9-2-2018. (C) Section 194 is the section on vacation of the office of a director. (D) Section 194 requires a return within 30 days of any change in a KMP's holdings.

Show the solution
  1. Check (A): wrong, the section has no operative text now.
  2. Check (B): matches the official text of the Act.
  3. Check (C): vacation of office is Section 167, not 194.
  4. Check (D): the 30-day return is in Section 170(2).

Answer: (B)

Exam tips

  • Open every answer on this topic with the status: Section 194 omitted w.e.f. 9-2-2018.
  • In MCQs, reject options that quote a current penalty under Section 194.
  • Pair this topic with Section 170. Examiners can test the register and the 30-day return in the same question.
  • Keep section numbers apart: 167 is vacation of office, 170 is the register, 149 is Board composition.
  • In a written answer, one clear line defining forward dealing earns easy marks before you state the law.

Practice questions from Key Managerial Personnel

Prohibition on Forward Dealings in Company Securities: frequently asked questions

Is Section 194 of the Companies Act, 2013 still in force?

No. The Companies (Amendment) Act, 2017 omitted it with effect from 9 February 2018. The Act now shows only a note of the omission.

What is forward dealing in securities of a company?

It is a contract made now to buy or sell securities at a fixed price, with delivery at a later date. The old Section 194 barred directors and KMP from such contracts in their own company, its holding, subsidiary or associate.

What is the penalty for forward dealing by a director or KMP?

There is no penalty under Section 194 now, because the section is omitted. Do not quote any old punishment as current law.

Where does the Companies Act now track directors' and KMP's securities?

Section 170 requires a register of directors and KMP, including securities they hold in the company and related companies. A return must be filed with the Registrar within 30 days of appointment and of any change.