The Gatekeeper: Compliance Officer

So, what happens when the gatekeepers forget they're also gate-locked in? because in the world of securities law, even silence can be price-sensitive.

The Gatekeeper

Who's a Compliance Officer (“CO”), Really? Let's Decode the Suit-and-Tie Jargon! Think of the Compliance Officer as the GateKeeper of Good Behaviour in a listed company. The components that entail this role in accordance to Regulation 2(1)(c) of the SEBI (Prohibition of Insider Trading) Regulations 2015 (“PIT Regulations”) are enlisted hereinunder as:

Senior Enough to Matter: The CO isn't just someone ticking boxes on the clipboard at the end of the hallway. Under Regulation 6(1) of the LODR Regulations, as recently clarified by SEBI Circular, the CO must be a whole-time employee, stationed not more than one level below the Board of Directors, and must be officially designated as a Key Managerial Personnel (“KMP”).

What does “one level below” mean? SEBI has now spelt it out that the CO must report directly to the Managing Director or Whole-Time Director(s) on the Board, and in their absence, to the CEO or equivalent who heads the day-to-day affairs. In essentia, effective compliance demands real-time access to board-level developments, which often materialize into sensitive or price-impacting information. The distinction between 'level' and 'reporting' is deliberate and legally significant, as mere reporting lines without hierarchical authority undermine the CO's ability to act independently and pre-emptively. In toto, elevating the position ensures that the CO is both empowered and informed to carry out their surveillance functions efficiently, in alignment with statutory duties under the SEBI (Listing Obligations and Disclosure Requirements) 2015 (“LODR Regulations”) and PIT Regulations, as well as the broader objectives of corporate governance and investor protection.

Fluency in Finance, not Forensics: While a CO is expected to be financially literate, that is to say, they should be able to read and understand basic financial statements like balance sheets, profit and loss accounts, and cash flow statements. However, this does not make them an appellate authority over the company's audited accounts. Once financial statements are certified by a qualified auditor and approved by the Board of Directors, the CO's role is not to second-guess or sit in appeal over the forensics as was duly opined by the SAT in V. Shankar v. SEBI^[1].

Gatekeeper of Secrets: They guard UPSI with the same care as a confidential boardroom decision—ensuring it remains secure, undisclosed, and far from casual conversations. They are expected to employ their prudence in order to invoke their 'best professional judgment' to pigeon-hole an information as UPSI and thereby make effective the closure of the trading window (as was observed in G Jayaraman v. SEBI^[2] (“G Jayaraman”).

Trade Tracker: Analogically speaking, the CO is the ultimate bouncer at the trading club where no Designated Person (“DP”) can trade without the CO's nod (pre-clearance) declaring they hold no UPSI. The CO then checks the application, confirms the trading window is open and that the proposed trade aligns with company rules and SEBI regulations. Once approved, the DP gets a limited-time VIP pass which is usually about seven trading days, to execute the trade. The CO keeps a sharp eye on the ledger, logging every pre-clearance request and approval to ensure no funny business happens after the fact. This gatekeeping process is there to stop any sneaky insider trading before it starts, keeping the market's dance floor fair, square, and scandal-free.

Case by Case

To truly grasp the intricate role of a CO, one must peer through the lens of landmark case laws that vividly illuminate their duties. The precedents discussed hereinunder not only highlight the complexities of regulatory compliance but also lift the veil from the high stakes encompassing the position and duties of a CO.

In Shilpi Cable Technologies Ltd.(“Shilp Cable”), the CO (from August 12, 2016, to May 1, 2017) failed to close the trading window for the UPSI period (March 10, 2017, to April 30, 2017) during which a demand notice (March 08, 2017) from Macquarie Bank which led to subsequent filing of a petition under the Insolvency and Bankruptcy Code, 2016 (“The Code”), constituted UPSI. The intimation of the Petition on April 10, 2017, was disclosed to the BSE on April 30, 2017, and to the NSE on May 2, 2017, after a 20-day delay.

In his defense, the CO contended that he had effectively resigned from his position on April 3, 2017. However, SEBI found that he remained privy to UPSI, having participated in related discussions during the UPSI period. SEBI concluded that his failure to declare the closure of the trading window constituted a violation of the Company's Code of Conduct. Furthermore, he was held in breach of Regulation 6(2) of the LODR Regulations for not ensuring timely disclosure obligations. Rejecting his argument that the resignation (tendered on April 3, 2017 and formally accepted only on May 1, 2017) relieved him of his duties, SEBI imposed a penalty of ₹5,00,000, holding him accountable for non-compliance.

Pitstop: A CO's responsibility does not end at resignation—it endures as long as the role is held in law, especially when the officer remains privy to UPSI. Functional disengagement cannot substitute formal relinquishment.

In the case of Mudit Finlease Ltd. (“MFL”), SEBI highlighted a glaring lapse in compliance by the company's CO-cum-Managing Director, who failed to close the trading window during a period when the UPSI (unaudited financial results) was clearly in circulation. The timeline is critical. On February 1, 2012, MFL's accountant finalized the unaudited financial results. The very next day, a Board Meeting notice was issued which was duly signed by the CO, stating that the results would be considered and approved at a meeting scheduled for February 13, 2012. However, the trading window remained open throughout this period. Yet, these results were only disclosed to the BSE on February 21, 2012 six days beyond the stipulated 45-day deadline under Clause 41(I)(c) of the Listing Agreement, which had expired on February 15, 2012. The CO's defense? The trading window had been closed from February 13 to 14 and a technical glitch prevented intimation to the stock exchanges. This defense was summarily rejected by SEBI due to the lack of supporting evidence. Additionally, a letter signed by the CO admitting the company's unawareness of the trading window closure requirement further exacerbated the regulatory breach. Consequently, a monetary penalty of ₹5,00,000, reinforcing the principle that ignorance of compliance obligations is no defense in the eyes of the regulator.

Pitstop: When UPSI is in play, delay in action is dereliction—compliance must be proactive, not post-facto. For a CO, ignorance of duty is never a valid defense, especially when the duty is statutory.

In Edelweiss Financial Services Ltd. (“EFSL”), the CO, failed to close the trading window during the UPSI period (January 25, 2017, to April 5, 2017) related to the acquisition by Ecap Equities Limited, a subsidiary of EFSL. The UPSI period began with a binding Term Sheet signed on January 25, 2017, and ended with the disclosure, which led to a 4.79% share price increase the next day. SEBI rejected the CO's defense that the said acquisition was not UPSI due to the small scale (INR 4 crore), as the disclosure's emphasis on business growth indicated price sensitivity. His practice of closing the trading window only for financial results and one instance of securities issuance was deemed a repetitive violation of Regulation 9(1) of PIT Regulations, leading to a Rs. 5,00,000 penalty.

Thereafter, in the appellatory recourse, the SAT affirmed that in a disclosure-based regulatory regime, certain events such as a 100% acquisition are inherently material and therefore constitute UPSI, regardless of the monetary value or relative size of the entities involved. The Tribunal observed that EFSL's own disclosure to stock exchanges presented the acquisition of AIMIN as a significant strategic move to bolster their fixed income advisory business, underscoring its material nature. While SAT upheld the finding of breach, the Tribunal did not concur with the aggravation of the penalty, thereby reducing the fine from ₹5 lakh to ₹1 lakh, noting the absence of wrongful gain.

Pitstop: In a disclosure-driven regime, the materiality of an event lies not in its price tag but in its potential to shape market perception—a 100% acquisition is inherently UPSI, regardless of scale. A CO is expected to possess a clear understanding of such nuances and cannot take refuge in defenses that do not withstand regulatory scrutiny. Strategic disclosures must be treated as triggers for trading window closures, not as optional calls awaiting market validation.

In the matter of trading activities of certain entities in the scrip of Future Retail Limited (“FRL”), the Regulator found critical lapses in compliance with insider trading norms during the period of UPSI (March 10, 2017 – April 20, 2017) linked to a proposed corporate restructuring scheme disclosed on April 20, 2017. Despite being aware of the UPSI, the CO failed to issue a formal trading window closure notice, relying instead on internal undertakings by a limited group of DPs involved in the said transaction. SEBI held that such “deemed closure” under the company's Code could not substitute the mandatory requirement to close the trading window for all DPs. Further, on March 24, 2017, CO granted pre-clearance for trading in FRL shares to a promoter entity, despite being aware that its director, also the CMD of FRL, was in possession of the UPSI and had executed confidentiality undertakings.

SEBI concluded that the CO failed to exercise the requisite due diligence and good faith in assessing the risk of insider trading, especially given the familial and corporate ties between the entities and individuals involved. Consequently, SEBI imposed a penalty of ₹10 lakh on CO for violations of Code of Conduct under the PIT Regulations, emphasizing that these failures compromised the regulatory safeguards meant to prevent insider trading (FRL Order). Later on, when the FRL Order was challenged before the SAT, the Tribunal opined that the de-merger information was “generally available” due to extensive media coverage from April 2016 to February 2017, including TV interviews and articles quoting FRL's CMD. The Tribunal conclusively upheld that the information was not UPSI owing to the fact that it was accessible on a non-discriminatory basis, thereby quashing the FRL Order.

Pitstop: A CO's duty is not merely to implement processes, but to safeguard market integrity by acting with his best professional judgment. Internal undertakings cannot replace the statutory obligation of trading window closure, and precaution must prevail where informational asymmetry exists. Yet, where information is truly public, the rationale for insider protection dissolves.

In Kemrock Industries and Exports Ltd. (“Kemrock”), the Regulator investigated alleged lapses in insider trading compliance by Kemrock Industries and Exports Ltd. and the CO, pertaining to the Financial Results (UPSI). SEBI contended that UPSI existed from July 10, 2012, when operational data was gathered and auditors were engaged and that the trading window should have been closed from that date. However, Kemrock had closed the window from August 7 to August 15, 2012, in line with their Code of Conduct, which required closure seven days before the board meeting scheduled on August 14. SEBI concluded that the company's timeline was compliant, as the information available on July 10 did not amount to a finalized UPSI. While two insiders i.e., the Managing Director and his wife traded without seeking pre-clearances during the UPSI period and window closure, there was no credible evidence that the CO was aware of or complicit in these trades, nor was there proof of a systemic failure to implement the Code of Conduct. SEBI also acknowledged the company's internal email dated August 6, 2012, reminding employees of the window closure, as a good faith effort to uphold compliance. Consequently, no penalty was imposed on CO, with SEBI holding that the allegations under the PIT Regulations, were not substantiated.

Pitstop: A CO is accountable not for perfect foresight, but for reasoned diligence. Where trading windows are closed in good faith, systems are followed, and no complicity or oversight is proved, regulatory liability does not arise merely from hindsight.

In Radico Khaitan Ltd. (“RKL”), the CO (from April 2018 to December 2022), faced SEBI's scrutiny for glaring lapses in enforcing the company's code of conduct. The probe zeroed in on UPSI tied to the unaudited financial results, which boasted a 38.57% profit surge.
SEBI discovered that during the trading window closure from July 15–26, 2018, CO sent notifications only to officials at General Manager level and above, excluding several DPs, who had access to UPSI. Post the April 2019 amendment to RKL's Code of Conduct, which broadened the DP definition to include employees in finance, legal, audit and related roles, the CO failed to inform this wider group. He also muddled matters with contradictory statements on pre-clearance approvals, admitted to six trades without pre-clearance, and neglected to disclose four of his own trades.

Facing SEBI's ire, CO argued that his slip-ups were technical, blaming misread regulations, the COVID-19 chaos and the 2019 Code overhaul. He called the notification failures “accidental omissions” and pointed to RKL's ₹17,500 fine and three-month trading ban as sufficient punishment, to dodge further penalties. However, the Adjudicating Officer (AO), unmoved by these excuses, held that a CO's duty to ensure all DP are adequately informed is sacrosanct and that neither the disruptions caused by COVID nor clerical oversights could justify leaving them uninformed. While SEBI acknowledged RKL's penalties and the lack of UPSI-based trading or investor harm, CO's failure to enforce the Code (especially the post-2019 Amendment) warranted action. Spared for his personal trades, he was hit with a ₹5,00,000 fine for administrative lapses, a stark reminder that COs can't sidestep their role in safeguarding market fairness.

Pitstop: A CO's role is not ceremonial, but rather central to the integrity of a company's code of conduct. SEBI made it clear that administrative lapses, however “technical,” are no excuse when they result in DPs being left in the dark. Amendments to internal codes and external disruptions like COVID do not dilute the obligation to act diligently and comprehensively. The post is demanding and ignorance - whether of law, process, or scope is not a shield but a shortfall.

In PVR Ltd., the CO (Tenure: April 1, 2014 to March 31, 2017), was found in violation of key provisions of PIT Regulations, despite holding the pivotal position of administering and enforcing the Code of Conduct. The CO was held accountable for multiple breaches of the PIT Regulations, including contra trades, trades without proper pre-clearance, approvals obtained from an unauthorized junior official and failure to disclose high-value transactions. In his defense, the CO cited his age, deteriorating vision and long-standing experience, submitting that the trades were miniscule, inadvertent and involved ESOP-allotted shares. He claimed the lapses were technical, caused by oversight or ignorance of evolving regulatory expectations and pointed to the disgorgement of his profit as sufficient redress. However, SEBI's AO rejected these defences, emphasizing that as the company's gatekeeper for compliance, the CO was expected to act with a higher standard of diligence and awareness. Ignorance of disclosure norms or procedural requirements, especially from someone in a senior compliance role, was found inexcusable. While his age, cooperation, and clean record were acknowledged, the AO imposed a ₹2 lakh penalty, underscoring that even non-malicious and technical violations by those entrusted with enforcing the rules cannot go unchecked.

Pitstop: When the CO, the very person entrusted to uphold the sanctity of insider trading norms, breaches the same safeguards they are meant to enforce, the violation strikes at the foundation of regulatory integrity. The duty is not merely to comply, but to exemplify.

The Bottom Line

Finally, to draw the curtains on this corporate compliance odyssey, one can fairly say that a CO stands as the 'Gatekeeper', tasked with slamming shut the trading window to protect the kingdom of market integrity. But what happens when the Gatekeeper fumbles the keys, forgets the lock, or gasp sneaks a trade themselves? The Regulator does not care for excuses, and the penalties rain down like confetti. Through a whirlwind of enforcement actions, we've seen the highs (rare reprieves) and lows (hefty fines) of compliance lapses. From ignored notices to “deemed closures” that don't cut it, the message is louder than a boardroom tantrum: close the window, guard the secrets, and don't trade on the sly. To wrap and concisely capture the crux of the cases that formed part of this odyssey, the said is done down below as:

• Shilpi Cable: Merely resigning does not waive the Gatekeeper's duty as UPSI disclosure failures stick like glue.
• MFL: No evidence, no excuse! Failing to close the trading window for financial results is a costly oversight.
• EFSL: Small deals, big consequences because ignoring UPSI for acquisitions spikes the penalty meter.
• FRL: “Deemed closure” is no shield! Pre-clearance during UPSI periods is a compliance car crash.
• Kemrock: Stick to the Code, dodge the rod—timely closure and no UPSI evidence keep penalties at bay.
• RKL: Sloppy notices and poor records turn the Gatekeeper into a cautionary tale of oversight overload.
• PVR Ltd.: Trading without pre-clearance as a Gatekeeper? That's a fiduciary facepalm with a side of fines.

While the CO serves as a crucial pillar in upholding regulatory integrity, placing the entire weight of compliance on a single individual is neither practical nor resilient as was duly observed in Rajendra Kumar Dabriwala v. SEBI. Just as a building's fire safety cannot rest on the shoulders of a lone fire marshal, corporate compliance must be pre-emptively built into the company's infrastructure regardless of whether the 'fire' ever occurs. Fire safety isn't about reacting once the flames rise; it's about installing alarms, conducting drills, placing extinguishers at strategic points and ensuring everyone knows their role. Similarly, compliance must be systematised long before regulatory scrutiny arrives, becoming an invisible yet integral part of business continuity.

This calls for the creation and institutionalisation of structured, cross-functional compliance protocols checklists mapped to routine business events (e.g., financial closures, M&A activity, board approvals), automated surveillance systems to flag potential UPSI triggers and real-time dashboards to track trading window closures, pre-clearance requests and disclosures. These systems don't just distribute the burden they create shared accountability across departments, making compliance a cultural norm rather than an operational afterthought. Further, an SOP-led compliance framework that integrates ethical AI usage can radically enhance both precision and efficiency. For instance, AI-powered tools can proactively scan internal communications and flag potential UPSI indicators, auto-generate compliance alerts, or even simulate disclosure impact scenarios. However, this must be grounded in ethical guardrails with clear SOPs outlining human oversight, data confidentiality.

Authors: Adv. Ravi Prakash (Associate Partner), Adv. Mohit Sirohi (Associate), and Adv. Vishal Jain (Associate) at Corporate Professionals Advisers & Advocates. Views are personal.