Section 194 of the Companies Act, 2013
Section 194 of the Companies Act, 2013 – Prohibition on Forward Dealings in Securities of Company by Director or Key Managerial Personnel (KMP)
❗ Note:
Section 194 has been omitted by the Companies Amendment Act, 2017, effective from 9 February 2018.
🧾 Before Omission – What Section 194 Contained:
Section 194 prohibited directors and KMPs of a company from engaging in forward dealings in the securities of the company or its holding, subsidiary, or associate company.
📌 Key Points (Before Omission):
Who was covered?
Directors
Key Managerial Personnel (KMP)
What was prohibited?
Buying or selling any right to call for delivery or make delivery of the company’s securities at a future date.
This included options and forward contracts.
Reason for prohibition:
To prevent insider trading and conflict of interest.
Penalty:
Punishable with imprisonment up to 2 years, or
Fine between ₹1 lakh to ₹5 lakh, or both.
❓ Why Was It Omitted?
SEBI (Securities and Exchange Board of India) already regulates insider trading and forward dealings under its own regulations.
To avoid duplication and conflicts, Sections 194 and 195 were removed from the Companies Act, 2013.
🔁 Current Regulation:
Now, such activities are governed by the SEBI (Prohibition of Insider Trading) Regulations, 2015.
📚 Summary:
Section 194 is no longer in force.
Forward dealings by directors and KMPs are now regulated by SEBI, not the Companies Act.
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