Corporate Policy & Disclosure Framework Development

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 The core components are: a Code of Conduct for Prevention of Insider Trading, a Code of Fair Disclosure of Unpublished Price Sensitive Information, a Related Party Transaction Policy, a Whistle Blower Policy (Vigil Mechanism), and — for listed companies — a Policy for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.

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.

UPSI is any information relating to a company or its securities, directly or indirectly, that is not generally available and which upon becoming generally available is likely to materially affect the price of the securities. Under Regulation 2(1)(n) of the PIT Regulations, this specifically includes: financial results, dividends, change in capital structure, mergers/acquisitions/de-mergers/disposals, changes in key managerial personnel, and material events as specified under LODR. The definition matters because it triggers the entire insider trading framework — trading window closures, pre-clearance requirements, and the prohibition on communicating UPSI except for 'legitimate purposes.'

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; a holding, subsidiary, or associate company; a subsidiary of a common holding company (fellow subsidiary); and directors or KMP of the holding company and their relatives.

Every related party transaction requires Board approval under Section 188(1) of the Companies Act, regardless of value, unless it is entered in the ordinary course of business and at arm's length price — in which case Board approval alone (via the RPT policy's approval mechanism) generally suffices without further shareholder approval. Transactions exceeding prescribed thresholds under Rule 15 of the Companies (Meetings of Board and its Powers) Rules 2014 — which vary by transaction type (sale/purchase of goods, availing/rendering services, appointment to office of profit, leasing property, etc.) — additionally require prior approval by an ordinary resolution of shareholders, with related parties abstaining from voting.

An arm's length transaction is one conducted as though the parties were unrelated and each acting in their own independent commercial interest, with no undue influence from the relationship. In practice, this is documented by benchmarking the pricing or terms against comparable third-party transactions (market rate for a lease, prevailing interest rate for an intercompany loan, standard commercial terms for a services agreement), and — where the transaction is significant or the benchmark is not straightforward — supporting the pricing with a CA or valuer's opinion. The RPT Policy should specify the documentation standard the company applies before certifying a transaction as arm's length.

An omnibus approval allows the Audit Committee (or Board, where no Audit Committee exists) to pre-approve a category of recurring, similar-nature related party transactions in advance — for example, monthly management fee payments to a group company, or recurring raw material purchases from a related supplier — rather than requiring case-by-case approval for every individual instance. This is a practical necessity for companies with routine intercompany dealings. The omnibus approval must specify the maximum value, the nature of transactions covered, and is generally valid for a financial year, subject to periodic review.

Under Section 177(9) of the Companies Act 2013, a Vigil Mechanism is mandatory for: every listed company; companies that accept deposits from the public; and companies that have borrowed money from banks and public financial institutions in excess of ₹50 crore. 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.

Rule 7 of the Companies (Meetings of Board and its Powers) Rules 2014 requires the Vigil Mechanism to: provide for adequate safeguards against victimisation of the whistle-blower; provide direct access to the Chairperson of the Audit Committee in exceptional cases; and be disclosed on the company's website (where a website is maintained) and in the Board's report. A policy document that does not genuinely implement these three elements — particularly the non-retaliation safeguard and the direct escalation path — does not meet the substantive requirement even if a document titled 'Whistle Blower Policy' exists on file.

Following the 2019 amendment to SEBI's PIT Regulations, every listed company, intermediary, and fiduciary is required to maintain a Structured Digital Database internally, capturing the names of persons with whom UPSI is shared, along with the Permanent Account Number or other identifier, the nature of UPSI shared, and the date on which it was shared. The SDD must have adequate internal controls and checks to ensure non-tampering, and must be preserved for a minimum period specified under the regulations (currently eight years, and preserved further if any litigation is pending).

A trading window is the period during which designated persons and their immediate relatives are permitted to trade in the company's securities. The PIT Code of Conduct specifies that the trading window closes when the compliance officer determines that a designated person or class of designated persons can reasonably be expected to have access to UPSI — for example, ahead of quarterly/annual financial results announcements, or during discussions on a material corporate action such as an M&A transaction, fundraise, or a significant management change. It reopens 48 hours after the UPSI becomes generally available.

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.

This depends on the threshold set in the company's own PIT Code — the regulations require companies to specify a value threshold above which pre-clearance is mandatory even during an open trading window (a common threshold used by many listed companies is trades exceeding ₹10 lakh in value over a specified period, though the exact figure is set by each company's Board-approved policy, not a fixed statutory number applicable to all companies). Below the company's specified threshold, 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.

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, materially higher shareholder-approval thresholds 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.

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 that any director or employee who enters such a contract in contravention of the section is punishable with a fine — following the Companies (Amendment) Act, 2020, the earlier imprisonment provision for listed-company officers was removed as part of the decriminalisation of this offence, so the current penalty under Section 188(5) is a monetary fine only, for both listed and other companies. Ratification within three months of the transaction can regularise it in some cases, subject to the specific facts.

For listed companies, yes — LODR Regulation 23(1) requires the RPT Policy to be disclosed on the company's website, with the weblink provided in the Annual Report. Additionally, listed companies must disclose related party transactions in the specified format to stock exchanges on a half-yearly basis and in the financial statements as per applicable accounting standards (Ind AS 24). For unlisted companies, there is no equivalent public website disclosure mandate, though related party transactions and balances must still be disclosed in the notes to the financial statements under AS 18 / Ind AS 24 as applicable, and Form AOC-2 (particulars of contracts with related parties) must accompany the Board's Report every year.

Form MBP-1 is the notice of disclosure of interest or concern that every director must give to the company under Section 184(1) of the Companies Act — disclosing their shareholding, directorship, or interest in any other body corporate, firm, or association of individuals. It must be given at the first Board meeting in which the director participates after their appointment, at the first Board meeting of every financial year, and whenever there is a change in the disclosures previously made. It is filed with the company (not with MCA directly) and recorded in the company's records; it is not an MCA e-form.

Under LODR Regulation 30, listed companies must disclose 'material' events or information to the stock exchanges — some events are deemed material automatically (Schedule III Part A, Para A), while others require the company to apply a Board-approved materiality policy to judge whether disclosure is triggered (Para B), based on omnibus criteria such as impact on turnover/net worth/profit thresholds, or whether the event would be regarded as material by a reasonable investor. This obligation exists specifically because listed company disclosures directly and immediately affect a publicly traded security's price — a concern that does not arise for unlisted companies, whose shares are not publicly traded.

Very often, yes. Institutional investors — particularly at Series B and beyond, and certainly ahead of any pre-IPO round — routinely review a target company's governance framework during due diligence, and the absence of a documented related party policy, insider trading discipline, or whistle-blower mechanism is flagged as a governance gap, sometimes as a condition to closing or as a post-closing action item in the shareholders' agreement. Building these frameworks proactively, before an investor asks, signals governance maturity and can smooth the diligence process considerably.

PNPC typically structures this as an initial engagement covering the regulatory footprint assessment, related party mapping, drafting of the applicable policy suite, and Board approval support — priced as a fixed, agreed fee confirmed in writing before work begins. Given that these policies require periodic review, amendment for regulatory changes, and (for listed companies) ongoing compliance officer support, many clients then move to an annual retainer that folds this into broader corporate secretarial and compliance services.

Yes — this is a core part of the engagement, not an assumption we work around. We review your shareholding pattern, Board composition, group company structure, and directors' other directorships and interests to build an actual related party map before drafting the policy. This exercise itself often surfaces relationships that founders had not consciously flagged as 'related party' in the legal sense — a cross-directorship with a vendor, or a director's spouse holding a stake in a supplier, for example.

These are two distinct, though related, requirements under the SEBI PIT Regulations. The Code of Conduct for Prevention of Insider Trading (Schedule B for listed companies, Schedule C for intermediaries/fiduciaries) governs how designated persons and connected persons handle UPSI internally — trading restrictions, pre-clearance, trading windows. The Code of Practices and Procedures for Fair Disclosure of UPSI (Regulation 8) is a separate, shorter set of principles governing how the company itself discloses UPSI to the outside world — requiring prompt, uniform, and universal dissemination rather than selective disclosure to analysts or specific investors. Both are mandatory for listed companies but address different audiences and risks.

'Connected person' is a broader regulatory concept under Regulation 2(1)(d) of the PIT Regulations — it includes anyone who is or has been associated with the company in any capacity, directly or indirectly, in a way that would reasonably be expected to give access to UPSI, including relatives of connected persons, and specifically includes categories such as auditors, accountancy firms, law firms, analysts, consultants, and bankers of the company. 'Designated persons' is a narrower, company-defined subset — the specific individuals (employees, directors, KMP) the company itself identifies as needing trading window restrictions and pre-clearance under its own Code of Conduct.

ESOP grants and exercises to designated persons must be conducted with awareness of the trading window and UPSI status — while regulatory carve-outs exist for certain ESOP-related transactions under specific conditions in the PIT Regulations (such as exercise of options where the exercise price is pre-determined and does not involve a market trade at the time UPSI is held), the underlying acquisition or subsequent sale of shares obtained through ESOP exercise is not automatically exempt from insider trading restrictions if the individual is in possession of UPSI at the time of sale. The company's PIT Code should specifically address how ESOP-related transactions are treated.

Section 188 of the Companies Act applies to companies generally, and a Section 8 company is a company under the Act, so the underlying related party approval discipline is relevant. In practice, however, Section 8 companies more often face related party scrutiny in the context of FCRA compliance, 12A/80G exemption conditions, and grant-funder due diligence — where a documented conflict-of-interest and related party policy is frequently a condition of institutional grant funding or CSR-linked funding, even where the exact SEBI/LODR-style framework built for commercial companies does not directly apply.

Cross-border group structures raise an additional related party dimension — transactions between the Indian company and its UAE affiliate (management fees, intercompany loans, cost-sharing arrangements) are related party transactions under Indian law and are also subject to India's transfer pricing rules under Section 92 of the Income-tax Act if they qualify as international transactions with associated enterprises, in addition to UAE Corporate Tax's own related party and connected person provisions under Federal Decree-Law No. 47 of 2022. PNPC's Chennai/Bangalore/Hyderabad and Dubai offices coordinate the RPT policy design and the transfer pricing documentation as a single, consistent engagement.

A general employee Code of Conduct covers workplace behaviour, ethics, anti-harassment, and conflict-of-interest principles broadly — it is good HR practice but is not the same as the statutorily-specific Code of Conduct for Prevention of Insider Trading, which has a defined regulatory structure (designated persons, trading windows, pre-clearance, SDD) under the PIT Regulations. Companies sometimes believe a general ethics code satisfies the insider trading requirement — it does not. The two documents should coexist and cross-reference each other, but they serve legally distinct purposes.

Good governance practice — and, for listed companies, the LODR framework's expectation of periodic review — is for the Audit Committee and Board to review these policies at least annually, even if no regulatory change has occurred, to confirm they remain fit for purpose given the company's current related party universe, designated persons list, and business activities. A formal re-approval resolution is not always required if the review concludes no amendment is needed, but the review itself, and the Board's consideration of it, should be minuted.

SEBI has wide powers under the SEBI Act and the PIT Regulations to investigate suspected violations, and an inadequate or non-functional Code of Conduct (one that exists on paper but was not actually implemented — no trading window enforcement, no SDD, no pre-clearance records) compounds the company's exposure if an actual insider trading violation is found, because it demonstrates a systemic governance failure rather than an isolated lapse. Penalties under Section 15G of the SEBI Act for insider trading violations can extend up to ₹25 crore or three times the profit made, whichever is higher, and can include disgorgement, debarment from the securities market, and criminal prosecution in serious cases.

Once a company's aggregate borrowings from banks and public financial institutions exceed ₹50 crore, the Vigil Mechanism under Section 177(9) becomes mandatory, alongside the requirement to constitute an Audit Committee if one does not already exist (thresholds for mandatory Audit Committee constitution under Section 177(1) are assessed separately based on paid-up capital, turnover, and outstanding loans/borrowings/deposits). PNPC first confirms whether the Audit Committee constitution threshold has also been crossed, since the Vigil Mechanism is designed to operate through the Audit Committee, and sequences the two requirements together rather than addressing the Vigil Mechanism in isolation.

Yes — this is a common engagement type. PNPC reviews the existing policy suite against the current regulatory text, identifies gaps (outdated SDD provisions, missing omnibus approval mechanism, absent materiality thresholds, non-functional Vigil Mechanism escalation path), and either amends the existing documents or redrafts them where the gap is substantial enough that amendment is less efficient than a fresh draft calibrated to the company's current structure.

Both, to a meaningful extent. A properly implemented related party transaction policy, with documented Board approval and arm's-length pricing analysis, is a director's primary evidence of having exercised due diligence and acted in the company's interest — relevant both to defending against a Section 188 indemnification claim and to the broader duty of care standard under Section 166 of the Companies Act. Similarly, a functioning insider trading compliance framework, with pre-clearance records showing a director sought and received approval before trading, is significant evidence in the director's favour if a trade is later scrutinised by SEBI, even though it does not create automatic immunity if UPSI possession is independently established.