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Exception
There is an exception to this prohibition in respect of insider trading happening
based on any communication required in the ordinary course of:
Business, or
Profession, or
Employment, or
under any law.
The foremost condition laid down here is that there should be any type of
communication, verbal or written, and that such communication is required in the
ordinary course of specified activities or under any law. Although the exception
triggered under any law is clear, the exceptions relating to activities of business,
profession or employment would need to strictly followed and in case of allegations
of violations, have to be established by the errant parties by facts, circumstances
and justification. In such circumstances it may be held that there is no violation of
insider trading provisions.
What is exactly Insider Trading?
This sub section, in the Explanation, provides the definition of insider trading to
mean, for purposes of this Section only:(i) AN ACT OF :
subscribing,
buying,
selling,
dealing
or agreeing to subscribe, buy, sell or deal
Here, not only the actual acts of subscribing, buying etc of securities of the company
as specified herein have been covered but also the acts of agreeing to subscribe,
buy, etc., have also been roped in. As regards the acting as a principal or agent is
concerned, the law of agency as laid down in the Indian Contract Act 1872 shall
have to be the kept in view. It is important to note here that the director, etc., as
specified herein, should reasonably expected to have access to securities related
any non-public price sensitive information. The words reasonably expected to
have access.. can be understood and invoked only on a case to case basis and
no definition is possible. The term securities has been defined in section 2 (81)
as:- securities mean the securities as defined in section (h) of section 2 of the
Securities Contracts (Regulation) Act, 1956, and, that would be applicable.
(ii) AN ACT OF
1. counselling about,
2. procuring, or
3. communicating
directly or indirectly any non-public price-sensitive information to any person.
This will indicate that insider trading not only covers the actual act of or agreeing to
subscribing, buying, selling, etc., of securities of the company as specified herein but
also the act of:1. giving counsel about, directly or indirectly, any non public price
sensitive information to any person, or
2. procuring, directly or indirectly, any non public price sensitive
information to any person,
3. communicating, directly or indirectly, any non public price sensitive
information to any person.
In the above paragraph, the term any person has been used and the question
would arise as to whether this includes only the director, key managerial personnel
and any other officer of the company or this includes any third party and therefore
has very wide in applicability.
Price Sensitive Information
Since the term price sensitive information has been used here, the same has been
defined to mean any information which relates, directly or indirectly, to a company
and which if published is likely to materially affect the price of securities of the
company.
The use of term non public before price sensitive information will indicate the
information is not in public domain. The words likely to materially affect the price of
securities have not been defined but would mean that critical information which has
the potential to bring about significant increase or decrease in the price of securities.
It was held in the case of Gujarat NRE Mineral Resources Ltd. v. SEBI [2011] 16
taxmann.com 99 (SAT Mum.) that in case of any normal activity of a company,
every decision by it in respect of that activity would have no effect, much less
material, on the price of its own securities. If that were so, then no company would
be able to function because every time it does normal activity, it would have to make
disclosures to the stock exchange(s) where its securities are listed. Hence from this
precedent law it appears that the activity should not be in the realm of normal activity
and it should be so significant which could materially affect the price of securities in
the market.
Definition
This definition of price sensitive information has been taken from the SEBI
{Prohibition of Insider Trading} Regulations 1992 which also lays down an
explanation as to what constitutes deemed to be price sensitive information :
(i) periodical financial results of the company;
(ii) intended declaration of dividends (both interim and final);
(iii) issue of securities or buy-back of securities;
(iv) any major expansion plans or execution of new projects.
(v) amalgamation, mergers or takeovers;
(vi) disposal of the whole or substantial part of the undertaking;
(vii) and significant changes in policies, plans or operations of the company;]
disputes, is to be determined by the courts and the same will obviously be subject to
various interpretations.