CHAPTER II

PROHIBITION ON DEALING, COMMUNICATING OR COUNSELLING

Prohibition on dealing communication or counselling on matters relating to inside trading

3. No insider shall -

(i) either on his own behalf or on behalf of any other person, deal in securities of a company listed on any stock exchange on the basis of any unpublished price sensitive information;
or
(ii) communicate any unpublished price sensitive information to any person, with or without his request for such information, except as required in the ordinary course of business or under any law;
or
(iii) counsel or procure any other person to deal in securities of any company on the basis of unpublished price sensitive information.

Violation of provisions relating to insider trading

4. Any insider, who deals in securities or communicates any information or counsels any person dealing in securities in contravention of the provisions of regulation 3 shall be guilty of Insider trading.

 

 

 

 

 

CHAPTER III 
INVESTIGATION

Board's right to investigate 

5.(1) Where the Board, on the basis of written information in its possession, is of the opinion that it is necessary to investigate and inspect the books of account, other records and documents of an insider for any of the purposes specified in sub-regulation (2), it may appoint an investigating authority for the said purpose.
(2) The purposes referred to in sub-regulation (1) may be as follows :

(a) to investigate into the complaints received from investors, intermediaries or any other person on any matter having a bearing on the allegations of insider trading; and
(b) to investigate suo-moto upon its own knowledge or information in its possession to protect the interest of investors in securities against breach of these regulations.
 

Procedure for investigation 

6.(1) Before undertaking an investigation under regulation 5 the Board shall give a reasonable notice to insider for that purpose.
(2) Notwithstanding anything contained in sub-regulation (1), where the Board is satisfied that in the interest of investors or in public interest no such notice should be given, it may by an order in writing direct that the investigation be taken up without such notice.
(3) On being empowered by the Board, the investigating authority shall undertake the investigation and inspection of books of accounts and insider against whom an investigation is being carried out shall be bound to discharge his obligations as provided in regulation 7.
 

Obligations of insider on investigation by the Board 

7.(1) It shall be the duty of every insider, who is being investigated, to produce to the investigating authority such books, accounts and other documents in his custody or control and furnish the authority with the statements and information relating to the transactions in securities market within such time as the said authority may require.
(2) The insider shall allow the investigating authority to have reasonable access to the premises occupied by such insider and also extend reasonable facility for examining any books, records, documents and computer data in his possession of the stock- broker or any other person and also provide copies of documents or other materials which, in the opinion of the investigating authority are relevant.
(3) The investigating authority, in the course of investigation, shall be entitled to examine or record statements of any member, director, partner proprietor and employee of the insider.
(4) It shall be the duty of every director, proprietor, partner, officer and employee of the insider to give to the investigating authority all assistance in connection with the investigation, which the insider may be reasonably expected to give.
 

Submission of Report to the Board 

8. The investigating authority shall, within one month of the conclusion of the investigation submit an investigation report to the Board.
 

Communication of Findings, etc. 

9.(1) The Board shall after consideration of the investigation report communicate the findings to the insider and he shall be given an opportunity of being heard before any action is taken by the Board on the findings of the investigating authority.
(2) On receipt of the explanation, if any, from the insider, the Board may call upon the insider to take such measures as the Board may deem fit to protect the interest of investors and in the interest of the securities market and for due compliance with the provisions of the Act, rules made thereunder and these regulations.
 

Appointment of Auditor 

10. Notwithstanding anything contained in regulation 5, the Board may appoint a qualified auditor to investigate into the books of account or the affairs of the insider;
Provided that, the auditor so appointed shall have the same powers of the inspecting authority as stated in regulation 5 and the insider shall have the obligations specified in regulation 7.
 

Directions by the Board 

11. On receipt of the explanation, if any, from the insider under sub-regulation (2) of regulation 9, the Board may without prejudice to its right to initiate criminal prosecution under section 24 of the Act, give such directions to protect the interest of investors and in the interest of the securities market and for due compliance with the provisions of the Act, rules made thereunder and these regulations, as it deems fit for all or any of the following purposes, namely :-

(a) directing the insider not to deal in securities in any particular manner;
(b) prohibiting the insider from disposing of any of the securities acquired in violation of these regulations;
(c) restraining the insider to communicate or counsel any person to deal in securities.
 

Appeal to the Securities Appellate Tribunal

12. [Any person aggrieved by an order of the Board made, on and after the
     commencement of the Securities Laws (Second Amendment) Act, 1999, (ie., after 16th
     December 1999), under these regulations may prefer an appeal to a Securities
     Appellate Tribunal having jurisdiction in the matter]1
 

[F.No.LE/6308/92] 


1Substituted for the earlier provision vide SEBI(Appeal to the Securities Appellate Tribunal) (Amendment) Regulations, 2000 vide S.O.278(E) dated March 28, 2000