Need for a Stringent Legislation on Insider Trading and its Relation to Mismanagement

Uncovering of immeasurable frauds in Indian and International corporate field has uncovered the dire necessity for developing legislations with an aim to regulate and improve corporate governance standards. Insider trading being one such evolving issue hindering peaceful governance. Recent succession of crises emerging in corporate and financial world led to introduction of new wave of corporate reforms for regulation of insider trading implying the requirement for enhancing a shareholder’s or a stakeholder’s rights and empowering their protection before a company. Stakeholders need to hold a feeling of belongingness towards the company they hold stake in. Attempts have been made in the past to amplify such necessity, yet small investors continue to shed tears for being subject to insider trading due to lack of stringent laws preventing it. Trend of exploiting monopoly information by delinquent persists where a way out of prosecution is found eventually through loopholes in the present guidelines enforced by SEBI governing insider trading. Such dominance of controlling stakeholders impacted other stakeholders approaching redressal forums for seeking protection under mismanagement under Companies Act, 2013. Legal provisions to penalise corporate frauds for violation of stringent but tolerant guidelines is of utmost importance. Confusion reigns over lack of a satisfactory theory on conditions that constitute insider trading. The author intends to establish that India must keep pace and adapt to changes in the corporate world and emerging issues to lay foundations for eliminating unfair trade practices. Insider trading is a fraudulent activity prejudicial to interests of a company and its stakeholders, hinting insider trading and mismanagement are inter related. The authors of this paper focus on determining the necessity for an exhaustive and stringent legislation on Insider trading and establishing a relation between insider trading and mismanagement taking reference from regulations of the United States.