Capital Market and Securities Laws · Prohibition of Insider Trading

Section 15G SEBI Act: Penalty for Insider Trading

Updated 11 October 2026 · Fact-checked

Section 15G of the SEBI Act penalises an insider who deals on unpublished price sensitive information, communicates it, or counsels or procures others to deal. The penalty is at least ₹10 lakh, extending to ₹25 crore or three times the profit, whichever is higher. Sections 194 and 195 of the Companies Act, 2013 are omitted.

Understand Penalties and Related Provisions under Companies Act, 2013

Insider trading means dealing in listed securities using price-sensitive information that the public does not have. It is unfair to ordinary investors, so the law punishes it. The key idea is unpublished price sensitive information (UPSI).

Section 15G of the SEBI Act, 1992 is the penalty provision. It applies to an insider who does any of three things: (i) deals in securities of a body corporate listed on a stock exchange on the basis of UPSI, either for himself or for another person; (ii) communicates UPSI to any person, with or without that person asking, except as required in the ordinary course of business or under any law; or (iii) counsels or procures another person to deal in securities on the basis of UPSI.

The penalty is not less than ₹10 lakh, but may extend to ₹25 crore or three times the profits made out of insider trading, whichever is higher. This text was substituted by an Act of 2014, effective 8 February 2014. So there is a floor and a flexible ceiling that grows with the profit.

The Companies Act, 2013 once had two related sections. Section 194 prohibited forward dealings in securities of the company by a director or key managerial personnel (KMP). Section 195 prohibited insider trading of securities. Both were omitted by the Companies (Amendment) Act, 2017 with effect from 9 February 2018. Insider trading is now dealt with under the SEBI Act and SEBI regulations, not under the Companies Act.

The Companies Act still touches directors and KMP in related ways. Section 170 requires a register of directors and KMP that includes details of securities they hold in the company, its holding, subsidiary and associate companies. Section 102 requires the explanatory statement to disclose the interest of directors, KMP and their relatives in special business.

Key rules to remember

Section 15G penalty range: Penalty ≥ ₹10 lakh; maximum = higher of ₹25 crore or 3 × profits made out of insider trading; Floor is fixed. The ceiling is whichever of the two amounts is higher.
Three limbs of section 15G: (i) Dealing on UPSI; (ii) Communicating UPSI; (iii) Counselling or procuring dealing on UPSI; The person must be an insider. Dealing relates to securities of a body corporate listed on a stock exchange.
Exception to communication: Communication allowed if required in the ordinary course of business or under any law; Applies to limb (ii) only. It does not excuse dealing.
Companies Act sections 194 and 195: Section 194 (forward dealing by director or KMP) and section 195 (insider trading): omitted w.e.f. 9 February 2018; Say they are omitted. Do not present them as operative penalty provisions.

How to solve Penalties and Related Provisions under Companies Act, 2013 questions

Use this order for any question on penalties for insider trading or the Companies Act sections.

1Identify the act: dealing, communicating, or counselling or procuring.
2Check that the person is an insider and that the information is UPSI, meaning not yet published and price sensitive.
3Check that the securities are of a body corporate listed on a stock exchange.
4Test the exception for communication: was it required in the ordinary course of business or under law?
5State section 15G and the penalty: minimum ₹10 lakh, maximum the higher of ₹25 crore or three times the profit.
6If the question mentions sections 194 or 195 of the Companies Act, state that both are omitted from 9 February 2018.
7If the facts give a profit figure, compute three times the profit and compare with ₹25 crore.
8Write a clear conclusion that applies the provision to the facts.

Quickest way: Three limbs, one range, two omissions

When to use it: Short-note questions and case facts where time is tight.

Write the three limbs: deal, communicate, counsel or procure.
Write the penalty: ₹10 lakh minimum; maximum higher of ₹25 crore or 3 × profit.
Add one line: sections 194 and 195 of the Companies Act omitted w.e.f. 9 February 2018.
Conclude with the amount for the facts given.

Common mistakes in Penalties and Related Provisions under Companies Act, 2013

Writing that section 195 of the Companies Act currently punishes insider trading.
Older books and notes still carry the original text.
Fix: State that sections 194 and 195 were omitted w.e.f. 9 February 2018 and that section 15G of the SEBI Act now applies.
Saying the maximum penalty is only ₹25 crore.
Students remember the fixed figure and drop the alternative.
Fix: Write: higher of ₹25 crore or three times the profits made out of insider trading.
Forgetting the ₹10 lakh minimum.
Students focus on the large maximum.
Fix: Always state the range: not less than ₹10 lakh, up to the maximum.
Treating all communication of UPSI as an offence.
The exception is missed.
Fix: Mention that communication required in the ordinary course of business or under any law is outside section 15G(ii).
Applying section 15G to unlisted companies.
The words 'listed on any stock exchange' are overlooked.
Fix: Check that the dealing is in securities of a body corporate listed on a stock exchange.

Worked examples

Example 1

Rohan, a director of a listed company, learns of an unannounced merger. Before the announcement he buys shares in his own name and makes a profit of ₹4 crore. State the penalty under section 15G of the SEBI Act.

Show the solution

Provision: section 15G(i) penalises an insider who deals in securities of a listed body corporate on the basis of UPSI.
Facts: Rohan is a director, so an insider. The merger news is unpublished and price sensitive. He dealt on it before publication.
Compute: three times the profit = 3 × ₹4 crore = ₹12 crore.
Compare: ₹12 crore is lower than ₹25 crore, so the higher amount is ₹25 crore.
The penalty is not less than ₹10 lakh and may extend to ₹25 crore.

Answer: Rohan is liable under section 15G(i). The penalty is at least ₹10 lakh and may extend to ₹25 crore, since three times the profit (₹12 crore) is lower than ₹25 crore.

Example 2

Discuss whether a director of a company can now be proceeded against under section 195 of the Companies Act, 2013 for insider trading, and whether section 194 on forward dealing still applies.

Show the solution

Provision: section 195 prohibited insider trading and section 194 prohibited forward dealings in securities of the company by a director or KMP.
Status: both were omitted by the Companies (Amendment) Act, 2017, w.e.f. 9 February 2018.
Effect: neither section can be applied to current conduct.
Insider trading by a director is now addressed under the SEBI Act, with the penalty in section 15G, and the SEBI regulations.
Directors' and KMP's shareholdings remain visible through the register under section 170.

Answer: No. Sections 194 and 195 are omitted from 9 February 2018. A director who trades on UPSI is liable to a penalty under section 15G of the SEBI Act, not under the Companies Act.

Exam tips

Open penalty answers with section 15G and its three limbs.
Quote the range exactly: minimum ₹10 lakh, maximum higher of ₹25 crore or three times the profit.
If a question names sections 194 or 195, state the omission date, 9 February 2018.
When profit is given, show the three-times calculation and compare it with ₹25 crore.
End every case answer with a one-line conclusion naming the section and the penalty.

Practice questions from Prohibition of Insider Trading

Penalties and Related Provisions under Companies Act, 2013: frequently asked questions

What is the penalty under section 15G of the SEBI Act?

It is not less than ₹10 lakh. It may extend to ₹25 crore or three times the profits made out of insider trading, whichever is higher.

Is section 195 of the Companies Act, 2013 still in force?

No. Section 195 was omitted with effect from 9 February 2018 by the Companies (Amendment) Act, 2017. Insider trading is now dealt with under the SEBI Act and SEBI regulations.

What happened to section 194 on forward dealing by directors and KMP?

Section 194 was also omitted w.e.f. 9 February 2018. It no longer operates as a prohibition.

Does section 15G punish only dealing in securities?

No. It also covers communicating UPSI, except in the ordinary course of business or under law, and counselling or procuring another person to deal on UPSI.