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CS Executive · Capital Market and Securities Laws · Prohibition of Insider Trading

A student claims that insider trading by directors and key managerial personnel is currently governed by Section 194 or Section 195 of the Companies Act, 2013. Which statement is correct on the current legal position?

Both Section 194 and Section 195 of the Companies Act, 2013 were omitted with effect from 9 February 2018. Insider trading is therefore regulated through the SEBI Act, 1992, notably Sections 12A and 15G, together with SEBI's regulations, not the Companies Act.

  1. ABoth sections have been omitted w.e.f. 9 February 2018, so the insider trading prohibition rests on the SEBI Act and SEBI regulationsCorrect
  2. BSection 195 remains in force but Section 194 has been omitted
  3. CSection 194 remains in force but Section 195 has been omitted
  4. DBoth sections remain in force and override the SEBI Act

Explanation

Sections 194 (forward dealings by director or KMP) and 195 (insider trading) were omitted by the Companies (Amendment) Act, 2017 w.e.f. 9-2-2018. The prohibition is therefore found in the SEBI Act (Section 12A and Section 15G) and SEBI regulations. Claims that either section survives are incorrect.

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