Being the controlling head of the companies, the management plays an indispensable and vital role in the regulation of its affairs. This includes a wide cadre of people right from the promoters who conceive idea of the legal entity to directors who eventually run the company enabling it to achieve its desired objectives along with gaining profits.

Promoters

Promoters are the persons who do the preliminary and incidental work required for the incorporation of a company. They are the first persons who control the affairs of the company, provide share and loan capital and also acquire the property essential to carry out the business transactions. After the completion of all the basic steps, the management of the company is passed into the hands of the directors.

Regulation of the promoters

The market regulator, the Securities Exchange Board of India (hereinafter referred to as “SEBI”) administers the conduct of the promoters of companies vide the Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 1992 (hereinafter referred to as the “SEBI Regulations”).

According to the SEBI Regulations, an insider means any person who is or was connected with the company or is deemed to have been connected with the company and is reasonably expected to have access to unpublished price sensitive information (any information which relates directly or indirectly to a company and which if published is likely to materially affect the price of securities of company) in respect of securities of a company. [Regulation 2(e)]. A promoter group company has been held to be an insider according to provisions of SEBI Regulations.[1]

The SEBI Regulations prohibits an insider to either on his own behalf or on behalf of any other person, deal in securities of a company listed on any stock exchange when in possession of any unpublished price sensitive information; or communicate or counsel or procure directly or indirectly any unpublished price sensitive information to any person who while in possession of such unpublished price sensitive information shall not deal in securities. [Regulation 3].

A summon or notice issued by SEBI under these regulations may be served in the manner provided in Regulation 22 of the Securities and Exchange Board of India (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulations, 2002.

The SEBI Regulations impose penalty to those guilty of insider trading includes wage freeze, suspension, ineligibility for future participation in employee stock option, etc.

In the news…

On September 10, 2018, renowned media firm NDTV’s promoters Prannoy Roy and Radhika Roy have received a show cause notice from SEBI dated August 31, 2018, on account of alleged violation of insider trading under Section 12A (d) and (e) of SEBI Act, 1992 read with Regulation 3(i) and Regulation 4 of SEBI Regulations.[2]