SEBI Rules: Promoters Can Pledge Shares Even When Trading Window Is Closed; SEBI Clarifies Rules..

If a promoter wishes to pledge shares even after the stock market trading window has closed, they will face no impediments. This clarification was provided by SEBI—the Securities and Exchange Board of India—itself. SEBI clarified that a designated person may pledge shares to raise funds even during the period when the trading window is closed. However, permission for this will be granted only if the action is undertaken with *bona fide* (good) intentions and prior approval has been obtained from the Compliance Officer. In fact, this information came to light following informal guidance issued by SEBI to Avenue Supermarts.

**When Can Shares Be Pledged?**

The inquiry in question covered various objectives for pledging shares, such as exercising Employee Stock Options (ESOPs) or raising funds for personal requirements. SEBI reiterated that permission for such transactions may be granted, provided they are deemed to be undertaken with *bona fide* intentions and receive approval under the company's internal framework. SEBI stated that, before approving, the Compliance Officer must verify the *bona fide* nature of any transaction involving the pledging or unpledging (revocation) of shares. The regulator further noted that transactions related to pledging shares are exempt from trading window restrictions, provided they are executed with *bona fide* intentions—such as raising funds—and that they comply with insider trading regulations and have received prior approval.

**What Constitutes a *Bona Fide* Intention?**

SEBI observed that there is no rigidly defined standard for what constitutes a *bona fide* intention; rather, this assessment must necessarily be conducted on a case-by-case basis. SEBI stated that companies are required to categorize such transactions through their respective Codes of Conduct, and the responsibility for evaluating the specific nature of each transaction lies with the Compliance Officers. SEBI stated that trading window restrictions, among other things, do not apply to the pledging of shares by Designated Persons (DPs), provided that such action is undertaken in good faith—such as for raising funds—and that prior approval has been obtained from the Compliance Officer, in adherence to the relevant regulations framed by the Board.

**Guidance Issued to This Company**

This guidance follows a request from the company, wherein it sought clarification under the SEBI (Informal Guidance) Scheme, 2025, regarding whether the pledging or unpledging of shares would be permissible during the period when the trading window is closed, and how such transactions would be treated under the Insider Trading Regulations. About restrictions on 'Contra Trades,' SEBI observed that the invocation of pledged shares results in a change in their 'beneficial ownership' and can be construed as a form of sale. Consequently, if a corresponding purchase or sale of shares has been executed within six months before or subsequent to such invocation, restrictions on 'Contra Trades' may be applicable to such transactions.

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