Insider Trading & RPT Policy Drafting India: Who Needs It and Who Does Not
Whether Insider Trading & RPT Policy Drafting India applies to a given business is the first thing worth settling, and it is where most of the early questions land. The questions below are the ones raised most often in practice; the full scope of the service is on the Insider Trading & RPT Policy Drafting India page.
What exactly is a 'Corporate Policy & Disclosure Framework' — is this one document or several?
It is a suite of distinct Board-approved policies, not a single document. The core components are: a Code of Conduct for Prevention of Insider Trading, a Code of Fair Disclosure of Unpublished Price Sensitive Information, a Related Party Transaction Policy, a Whistle Blower Policy (Vigil Mechanism), and — for listed companies — a Policy for Determination of Materiality of Events under LODR Regulation 30. Which of these are legally mandatory for your company depends on whether you are listed, unlisted public, or private, and on size thresholds under Section 177(9) of the Companies Act.
In practice: A founder may believe the company has 'a governance policy' because it downloaded one PDF template. In practice, each policy addresses a legally distinct obligation with its own approval mechanism and disclosure requirement. We assess and build the specific subset your company actually needs.
Is an insider trading policy mandatory for a private, unlisted company?
The formal Code of Conduct requirement under SEBI's PIT Regulations, 2015 applies to listed companies, market intermediaries, and certain fiduciaries — not to unlisted private companies as a direct statutory mandate. However, a private company that is fundraising with sophisticated institutional investors, preparing for an eventual IPO, or has employees and advisors with routine access to sensitive financial or strategic information often adopts an insider trading policy voluntarily — both as a governance best practice that investors expect, and to build the operational discipline needed before the company actually lists and the SEBI mandate becomes immediately applicable.
In practice: Companies that wait until the IPO process begins to build this discipline from scratch face a compressed timeline and often struggle to retroactively demonstrate that UPSI was properly controlled in the pre-IPO period. We advise growth-stage companies with institutional investors to adopt a lighter-weight version well before listing plans firm up.
Who counts as a 'related party' for the purposes of Section 188 of the Companies Act?
Section 2(76) of the Companies Act 2013 defines related party broadly: a director or their relative; a KMP or their relative; a firm in which a director, manager, or their relative is a partner; a private company in which a director or manager is a member or director; a public company in which a director or manager is a director and holds along with relatives more than 2% of paid-up share capital; any body corporate whose Board, managing director, or manager is accustomed to act on the directions of the company's director or manager; any person under whose advice a director or manager is accustomed to act (advice, directions or instructions given in a professional capacity are excluded from the two 'accustomed to act' limbs); a holding, subsidiary, or associate company; an investing company or the venturer of the company; a subsidiary of a common holding company (fellow subsidiary); and directors or KMP of the holding company and their relatives.
In practice: The 'accustomed to act on directions' and 'advice' limbs are the two most frequently overlooked categories — they can capture relationships that do not look like conventional related party dealings at first glance, particularly in group structures with informal cross-directorships. We map this specifically for each client rather than relying on the obvious categories alone.
Does every related party transaction need Board approval, or only large ones?
Section 188(1) requires the consent of the Board, given by a resolution at a Board meeting, for a company's contracts or arrangements with related parties of the listed kinds (sale, purchase or supply of goods; disposal or purchase of property; leasing; services; appointment of agents; a related party's appointment to an office or place of profit; and underwriting of securities). It does not apply to transactions entered into in the ordinary course of business that are on an arm's length basis. Where the prescribed thresholds under Rule 15 are crossed, prior approval of the company by resolution is also required, with related-party members not voting; that shareholder resolution is not required for transactions between a holding company and its wholly owned subsidiary whose accounts are consolidated with it. Companies required to have an Audit Committee also need its approval under Section 177, and listed companies are subject to Regulation 23 of the LODR Regulations. Confirm the current Rule 15 thresholds before relying on them.
In practice: Companies sometimes treat 'arm's length' as enough on its own. The Section 188(1) exemption needs both limbs — the transaction must be in the ordinary course of business and on an arm's length basis — and that conclusion should be documented. The RPT Policy should make the test explicit, and should keep Section 177 and LODR approval requirements, where they apply, separate from Section 188.
Is a Whistle Blower Policy / Vigil Mechanism mandatory for our company?
Section 177(9) of the Companies Act and Rule 7 of the Companies (Meetings of Board and its Powers) Rules, 2014 require a vigil mechanism for listed companies and for prescribed classes of company, namely those that accept deposits from the public and those with borrowings from banks and public financial institutions above the prescribed limit; confirm the current limit. For companies outside these categories, it is not a direct statutory mandate, but the SEBI LODR Regulations require it for all listed companies as part of continuous compliance, and it is widely regarded as governance best practice for any company with institutional investors or a professionalising Board.
In practice: We flag this proactively as part of our annual compliance review.
Who should be the Compliance Officer for the insider trading policy?
Under the PIT Regulations, the listed company must designate a Compliance Officer — typically a senior officer, often the Company Secretary — reporting to the Board or the Board Committee, responsible for setting the trading window, pre-clearing designated persons' trades, maintaining the Structured Digital Database, and monitoring adherence to the Code. This should be a person with sufficient seniority and independence to enforce restrictions even against senior management and promoters, and the appointment should be formally recorded in Board minutes.
In practice: In smaller listed or pre-IPO companies without a full-time Company Secretary, this responsibility sometimes falls informally on the CFO or a finance team member without the corresponding authority or bandwidth to actually enforce it. We advise on the right internal appointment and, where appropriate, on outsourced compliance officer support arrangements.
Can a designated person trade in company shares without pre-clearance if the trading window is open?
When the window is open, pre-clearance by the Compliance Officer is needed only for trades above the threshold the Board stipulates in the company's code, so below it pre-clearance may not be required, but designated persons remain bound by the general prohibition on trading while in possession of UPSI regardless of window status or value.
In practice: We calibrate the pre-clearance threshold to the company's scale and typical designated-person holdings — a threshold copied from a large-cap listed company's template can be either meaningless (too high for a smaller issuer) or overly restrictive (too low, creating administrative friction) if applied without adjustment.
How does a Related Party Transaction Policy differ for a listed company versus an unlisted one?
For an unlisted company, the RPT Policy operationalises Section 188 of the Companies Act — Board approval, arm's-length assessment, and shareholder approval above Rule 15 thresholds. For a listed company, LODR Regulation 23 layers additional, more stringent requirements: mandatory Audit Committee (not just Board) approval for all RPTs, a separate shareholder-approval requirement for material related party transactions, with materiality tied to the company's consolidated turnover (with related parties abstaining from the shareholder vote), and mandatory half-yearly disclosure of RPTs to the stock exchanges in the prescribed format. The listed-company RPT Policy is a materially more detailed document.
In practice: We draft two distinct tiers of RPT Policy depending on listing status, and specifically flag the Audit Committee approval step for listed and soon-to-be-listed clients — this is frequently missed by companies transitioning from unlisted to listed status who assume their existing Board-approval-only policy is still sufficient.
What happens if a related party transaction is entered into without the required Board or shareholder approval?
Under Section 188(3) of the Companies Act, a related party contract entered into without Board or (where applicable) shareholder approval is voidable at the option of the Board, and if the contract is with a related party to a director, the director concerned is liable to indemnify the company against any loss incurred. Section 188(5) further provides a monetary consequence for a director or employee who enters into or authorises such a contract in contravention of the section. The penalty provisions of Section 188(5) were revised by the Companies (Amendment) Act, 2020, so confirm the current text, including the amount and whether it operates as a penalty or a fine, before relying on it. If the contract is ratified by the Board or, as applicable, the shareholders within three months of the date it was entered into, it is not voidable on that ground (Section 188(3)).
In practice: The 'voidable at the Board's option' consequence is particularly relevant in a change-of-control or M&A due diligence context — an acquirer's counsel will specifically test whether historical related party transactions had proper approval, because an unapproved transaction represents a live legal risk they are inheriting.
Where this sits in the wider engagement
Insider Trading & RPT Policy Drafting India rarely arrives on its own. The statutory basis and the current requirements are set out on the Insider Trading & RPT Policy Drafting India service page, and the related services are grouped under Corporate Law.
What PNPC does
PNPC Global has practised since 1986 across India and the UAE. On Insider Trading & RPT Policy Drafting India we take the work end to end — reviewing the facts, preparing and filing what is required, and dealing with the authority through to closure.