Regulation of Insider Trading in Private Companies - Are We Casting The Net Too Wide ?

Abstract

This Article attempts to analyze the desirability or otherwise of prohibiting insider trading in the context of private companies in the light of Section 195 of the recently enacted Companies Act, 2013. While earlier, ‘insider trading’ was considered as a civil/criminal wrong characteristically associated with public companies only, Section 195 arguably extends the reach of law to cover even private and public unlisted companies. This provision has invoked considerable criticism and apprehensions from scholars and legal practitioners alike; However no serious attempt has been made so far to understand the rationale of insider trading (if any) in the context of private companies. The present Article attempts to fill this lacunaby tracing the development of common law on insider trading and assessing whether the rationale for curbing this insidious activity in public companies can be extended to private companies. Further, the Article discusses the insider trading regimes of other jurisdictions such as United States, Canada and New Zealand to understand the different ways in which countries have previously sought to apply insider trading laws to private companies. An attempt has been made to highlight the problems and loopholes in Section 195 and the regulatory dilemmas likely to be encountered in extending the existing legal regime to private companies. Finally, the Article discusses alternative regulatory mechanisms or measures which can be adopted to mitigate these concerns in order to find a workable solution.