Thursday, February 7, 2019

Insider Trading And Its Law In India

Insider Trading refers to the practice of buying or selling stock on the basis of information which is not accessible to the public. In other words, Insider trading means a trading by insider of the company. Insider is a person, who have access to non-public information relating to securities of the company.
For e.g - A govt. employee take action upon his knowledge about a new regulation to be passed which will benefit a butter exporting firm and buys its shares before the regulation becomes general or public knowledge.
Insider is having a knowledge of unpublished price, sensitive information or any other security information. Insider trading is not a violation of law in itself but when insider uses non-public information for trading with company then it becomes violation of law because insider of company breaches the trust or confidence of company so it makes insider trading violation of law.
             Prohibition of insider trading had been introduced by the Stock and Exchange Board of India ( SEBI ) Act, 1992. Before the SEBI act, there were no provision relating to the insider tradings while company act, 1956 was implemented. The SEBI act,1992 was prohibited the insider trading. SEBI made regulation called SEBI ( prohibition of insider trading ) Regulation,1992. The law made insider trading as a offence those person who involve in the insider trading were punished under the regulation.
          In 2013, the New Company Act came into force which Incorporated the provision relating to insider trading. The section-195 of company act, 2013 deals with insider trading in the company and its applicable on the public or private and listed or unlisted company. This provision also defines insider trading in wider sense. In 2015, SEBI regulation defined trading means and includes buying, selling, dealing or agreeing to subscribe in any security of company.
Insider trading is prohibit by two central made act one is SEBI act and other is Companies act, 2013. If a person is found guilty of insider trading then person could be imprisonment for up to 10 years or fine upto 25 crore Rs or thrice the amounts of profit.