Capital Market

PART A AN OVERVIEW OF CAPITAL MARKET IN INDIA*
Transfer of resources from those with idle resources to others who have a productive need for them is perhaps most efficiently achieved through the securities markets. Stated formally, securities markets provide channels for allocation of savings to investments and thereby decouple these two activities. As a result, the savers and investors are not constrained by their individual abilities, but by the economys abilities to invest and save respectively, which inevitably enhances savings and investment in the economy. MARKET SEGMENTS The securities market has two interdependent and inseparable segments, the new issues (primary market) and the stock (secondary) market. The primary market provides the channel for sale of new securities while the secondary market deals in securities previously issued. The price signals, which subsume all information about the issuer and his business including associated risk, generated in the secondary market, help the primary market in allocation of funds. The issuers of securities issue (create and sell) new securities in the primary market to raise funds for investment and/or to discharge some obligation. They do so either through public issues or private placement. There are two major types of issuers who issue securities. The corporate entities issue mainly debt and equity instruments (shares, debentures, etc.), while the governments (central and state governments) issue debt securities (dated securities, treasury bills). The secondary market enables participants who hold securities to adjust their holdings in response to changes in their assessment of risk and return. They also sell securities for cash to meet their liquidity needs. A variant of secondary market is the forward market, where securities are traded for future delivery and payment. Pure forward is out side the formal market. The versions of forward in formal market are futures and options. In futures market, standardised securities are traded for future delivery and settlement. These futures can be on a basket of securities like an index or an individual security. In case of options, securities are traded for conditional future delivery. There are two types of options a put option permits the owner to sell a security to the writer of options at a predetermined price while a call option permits the owner to purchase a security from the writer of the option at a predetermined price. These options can also be on individual stocks or basket of stocks like index. Two exchanges, namely NSE and BSE provide trading of derivatives of securities.
Adopted from the Article 'An Overview of the Securities Market in India', authored by Shri M S Sahoo and published in April 2004 issue of Chartered Secretary.
SUPPLEMENT FOR SECURITIES LAWS & REGULATION OF FINANCIAL MARKETS
PRODUCTS AND PARTICIPANTS Savings are linked to investments by a variety of intermediaries through a range of complex financial products called securities which is defined in the Securities Contracts (Regulation) Act, 1956 to include shares, scrips, stocks, bonds, debentures, debenture stock, or other marketable securities of like nature in or of any incorporate company or body corporate, government securities, derivatives of securities, units of collective investment scheme, security receipts, interest and rights in securities, or any other instruments so declared by the central government. There are a set of economic units who demand securities in lieu of funds and others who supply securities for funds. These demand for and supply of securities and funds determine, under competitive market conditions in goods and securities market, the prices of securities. It is not that the suppliers of funds and suppliers of securities meet each other and exchange funds for securities. It is difficult to accomplish such double coincidence of wants. The amount of funds supplied by the supplier of funds may not be the amount needed by the supplier of securities. Similarly, the risk, liquidity and maturity characteristics of the securities may not match preference of the supplier of funds. In such cases, they incur substantial search costs to find each other. Search costs are minimised by the intermediaries who match and bring these suppliers together. They may act as agents to match the needs of the suppliers of funds / securities, help them in creation and sale of securities or buy the securities issued by supplier of securities and in turn, sell their own securities to suppliers of funds. It is, thus, a misnomer that securities market disintermediates by establishing a direct relationship between the suppliers of funds and suppliers of securities. The market does not work in a vacuum; it requires services of a large variety of intermediaries like merchant bankers, brokers, etc to bring the suppliers of funds and suppliers of securities together for a variety of transactions. The disintermediation in the securities market is in fact an intermediation with a difference; it is a risk-less intermediation, where the ultimate risks are borne by the suppliers of funds/securities (issuers of securities and investors in securities), and not the intermediaries. The securities market, thus, has essentially three categories of participants, namely the issuers of securities, investors in securities and the intermediaries and two categories of products, namely the services of the intermediaries and the securities, including derivatives. The issuers and investors are the consumers of services rendered by the intermediaries while the investors are consumers of securities issued by issuers. Those who receive funds in exchange for securities and those who receive securities in exchange for funds often need the reassurance that it is safe to do so. This reassurance is provided by the law and custom, often enforced by the regulator. The regulator develops fair market practices and regulates the conduct of issuers of securities and the intermediaries so as to protect the interests of investors in securities. The regulator ensures a high standard of service from intermediaries and supply of quality securities and nonmanipulated demand for them in the market. Securities Market and Economic Growth A well functioning securities market is conducive to sustained economic growth. There have been a number of studies, starting from World Bank and IMF to various scholars, which have established robust relationship not only one way, but also the both
ways, between the development in the securities market and the economic growth. The securities market fosters economic growth to the extent that it-(a) augments the quantities of real savings and capital formation from any given level of national income, (b) increases net capital inflow from abroad, (c) raises the productivity of investment by improving allocation of investible funds, and (d) reduces the cost of capital. It is reasonable to expect savings and capital accumulation and formation to respond favourably to developments in securities market. The provision of even simple securities decouples individual acts of saving from those of investment over both time and space and thus allows savings to occur without the need for a concomitant act of investment. If economic units rely entirely on self-finance, investment is constrained in two ways: by the ability and willingness of any unit to save, and by its ability and willingness to invest. The unequal distribution of entrepreneurial talents and risk taking proclivities in any economy means that at one extreme there are some whose investment plans may be frustrated for want of enough savings, while at the other end, there are those who do not need to consume all their incomes but who are too inert to save or too cautious to invest the surplus productively. For the economy as a whole, productive investment may thus fall short of its potential level. In these circumstances, the securities market provides a bridge between ultimate savers and ultimate investors and creates the opportunity to put the savings of the cautious at the disposal of the enterprising, thus promising to raise the total level of investment and hence of growth. The indivisibility or lumpiness of many potentially profitable but large investments reinforces this argument. These are commonly beyond the financing capacity of any single economic unit but may be supported if the investor can gather and combine the savings of many. Moreover, the availability of yield bearing securities makes present consumption more expensive relative to future consumption and, therefore, people might be induced to consume less today. The composition of savings may also change with fewer saving being held in the form of idle money or unproductive durable assets, simply because more divisible and liquid assets are available. International Linkage The securities market facilitates the internationalisation of an economy by linking it with the rest of the world. This linkage assists through the inflow of capital in the form of portfolio investment. Moreover, a strong domestic stock market performance forms the basis for well performing domestic corporate to raise capital in the international market. This implies that the domestic economy is opened up to international competitive pressures, which help to raise efficiency. It is also very likely that existence of a domestic securities market will deter capital outflow by providing attractive investment opportunities within domestic economy. Any financial development produces allocational improvement over a system of segregated investment opportunities. The benefits of improved investment allocation is such that Mc Kinnon defines economic development as reduction of the great dispersion in social rate of return to existing and new investments under domestic entrepreneurial control. Instead of emphasising scarcity of capital, he focuses on the extra-ordinary distortions commonly found in the domestic securities markets of the developing countries. The distortions in the real sectors such as monopoly power, tariff protection, import quotas, credit rationing add salt to injury. In the face of great discrepancies in rate of return, the accumulation of capital does not contribute much to development. A developed
securities market successfully monitors the efficiency with which the existing capital stock is deployed. In as much as the securities market enlarges the financial sector, promoting additional and more sophisticated financing, it increases opportunities for specialisation, division of labour and reductions in costs in financial activities. The securities market and its institutions help the user in many ways to reduce the cost of capital. They provide a convenient market place to which investors and issuers of securities go and thereby avoid the need to search a suitable counterpart. The market provides standardised products and thereby cuts the information costs associated with individual instruments. The market institutions specialise and operate on large scale which cuts costs through the use of tested procedures and routines. There are also other developmental benefits associated with the existence of a securities market. 1. The securities market provides a fast-rate breeding ground for the skills and judgement needed for entrepreneurship, risk bearing, portfolio selection and management. 2. An active securities market serves as an engine of general financial development and may, in particular, accelerate the integration of informal financial systems with the institutional financial sector. Securities directly displace traditional assets such as gold and stocks of produce or, indirectly, may provide portfolio assets for unit trusts, pension funds and similar FIs that raise savings from the traditional sector. 3. The existence of securities market enhances the scope, and provides institutional mechanisms, for the operation of monetary and financial policy. A PROFILE OF THE SECURITIES MARKET The past decade in many ways has been remarkable for securities market in India. It has grown exponentially as measured in terms of amount raised from the market, number of stock exchanges and other intermediaries, the number of listed stocks, market capitalisation, trading volumes and turnover on stock exchanges, and investor population. The market has witnessed fundamental institutional changes resulting in drastic reduction in transaction costs and significant improvements in efficiency, transparency and safety. Dependence on Securities Market Three main sets of entities depend on securities market. While the corporates and governments raise resources from the securities market to meet their obligations, the households invest their savings in securities. While the corporate sector and governments together raised a sum of Rs. 226,911 crore during 2001-02, the household sector invested 4.3% of their financial savings through the securities market during 2000-01.
Corporate Sector : The 1990s witnessed emergence of the securities market as a major source of finance for trade and industry. The share of capital market based instruments in resources raised externally increased to 53% in 1993-94, but declined thereafter to 31% by 2000-01.
Governments : Along with increase in fiscal deficits of the governments, the dependence on market borrowings to finance fiscal deficits has increased over the years. The state governments and the central government financed about 14% and 18% respectively of their fiscal deficit by market borrowings during 1990-91. In percentage terms, dependence of the state governments on market borrowing did not increase much during the decade 1991-2002. In case of central government, it increased to 69.4% by 2001-02. Households : Household sector accounted for 89% of gross domestic savings during 2000-01; 53% of their savings were in financial assets. The share of financial savings of the household sector in securities (shares, debentures, public sector bonds and units of UTI and other mutual funds and government securities) is estimated to have gone down from 22.9% in 1991-92 to 4.3% in 2000-01.
Though there was a major shift in the saving pattern of the household sector from physical assets to financial assets and within financial assets, from bank deposits to securities, the trend got reversed in the recent past due to high real interest rates, prolonged subdued conditions in the secondary market, lack of confidence by the issuers in the success of issue process as well as of investors in the credibility of the issuers and the systems and poor performance of mutual funds. The portfolio of household sector remains heavily weighted in favour of physical assets and fixed income bearing instruments. Investor Population The Society for Capital Market Research and Development carries out periodical surveys of household investors to estimate the number of investors. Their first survey carried out in 1990 placed the total number of share owners at 90-100 lakh. Their second survey estimated the number of share owners at around 140-150 lakh as of mid-1993. Their latest survey estimates the number of shareowners at around 2 crore at 1997 end, after which it remained stagnant upto the end of 1990s. The bulk of increase in number of investors took place during 1991-94 and tapered off thereafter. 49% of the share owners at the end of 2000 had, for the first time, entered the market before the end of 1990, 44% entered during 1991-94, 6.3% during 1995-96 and 0.8% since 1997. The survey attributes such tapering off to persistent depression in the share market and investors bad experience with many unscrupulous company promoters and managements. According to the SEBI-NCAER survey of Indian investors conducted in early 1999, an estimated 12.8 million, or 7.6% of all Indian households representing 19 million individuals had directly invested in equity shares and/or debentures as at the end of financial year 1998-99. The investor households increased at a compound growth rate of 22% between 1985-86 and 1998-99. About 35% of investor households became investors in equity shares prior to 1991, while 47% of the investors entered the market between 1991 and 1995 and 17% after 1995. More than 156 million or 92% of all Indian households were non-investor households who did not have any investments in equity/debentures. Low per capita income, apprehension of loss of capital, and economic insecurity, which are all inter-related factors, significantly influenced the investment attitude of the households. The lack of awareness about securities market and absence of a dependable infrastructure and distribution network coupled with aversion to risk inhibited non-investor households from investing in the securities market.
An estimated 15 million (nearly 9%) of all households representing at least 23 million unit holders had invested in units of mutual funds. Total investible resources of mutual funds account for about 23% of market capitalisation compared to more than 50% in developed countries. The mutual funds have not yet become an attractive investment avenue for the low and middle-income groups. Primary Market
Corporate Securities : Average annual capital mobilisation from the primary market, which used to be about Rs.70 crore in the 1960s and about Rs.90 crore in the 1970s, increased manifold during the 1980s, with the amount raised in 1990-91 being Rs. 4,312 crore. It received a further boost during the 1990s with the capital raised by non-government public companies rising sharply to Rs. 26,417 crore in 1994-95. The market, however, appears to have dried up since 1995-96 due to interplay of demand and supply side forces. In real terms, the amount raised by non-government public companies during 2001-02 is about 60% of the amount raised a decade back in 1990-91.
Many investors who were lured into the market during 1992-94 seem to be adopting a very cautious approach because of their frustration with some of the issuers and intermediaries associated with the securities market. They have not completely withdrawn from the market, but are looking for quality issues the availability of which has declined due to stricter eligibility criteria for public issues imposed by SEBI and the general slowdown in the economic activity. Simultaneously, issuers have shifted focus to other avenues for raising resources like private placement where compliance is much less. Available data, although scanty, indicate that private placement has become a preferred means of raising resources by the corporate sector. It accounted for about 89% of total resources mobilised through domestic issues by the corporate sector during 2001-02. Rapid dismantling of shackles on institutional investments and deregulation of the economy are driving growth of this segment. There are several inherent advantages of relying on private placement route for raising resources. While it is cost and time effective method of raising funds and can be structured to meet the needs of the entrepreneurs, it does not require detailed compliance with formalities as required in public or rights issues. It is believed in some circles that private placement has crowded out public issues. Indian market is getting integrated with the global market though in a limited way through euro issues. Since 1992, when they were permitted access, Indian companies have raised about Rs. 40,000 crore through ADRs/GDRs. By the end of December, 2003, 517 FIIs were registered with SEBI. They had net cumulative investments over of US $ 23 billion by the end of December 2003. The market is getting institutionalised as people prefer mutual funds as their investment vehicle, thanks to evolution of a regulatory framework for mutual funds, tax concessions offered by government and preference of investors for passive investing. The net collections by mutual funds picked up during 1990s and increased to Rs. 19,953 crore during 1999-2000. This, however, declined to Rs. 4,580 crore during 2002-03. Starting with an asset base of Rs. 25 crore in 1964, the total assets under management at the end of March 2003 was Rs. 1,09,297 crore. The number of households owning units of MFs exceeds the number of households owning equity and debentures.
Government Securities : The primary issues of the Central Government have increased many-fold during the decade of 1990s from Rs. 8,989 crore in 1990-91 to
Rs. 1,51,126 crore in 2002-03. The issues by state governments increased by about twelve times from Rs. 2,569 crore to Rs. 30,853 crore during the same period. Secondary Market
Corporate Securities : The number of stock exchanges increased from 11 in 1990 to 23 now. All the exchanges are fully computerised and offer 100% on-line trading. 9,143 companies were available for trading on stock exchanges at the end of March 2003. The trading platform of the stock exchanges was accessible to 9,519 members from over 400 cities on the same date.
The market capitalisation grew ten fold between 1990-91 and 1999-2000. All India market capitalisation is estimated at Rs. 631,921 crore at the end of March 2003. The market capitalisation ratio, which indicates the size of the market, increased sharply to 85% by March 2000. It, however, declined to 29% by end March 2003. Traditionally, manufacturing companies and financial services sector accounted for a major share in market capitalisation. However, in the recent past, the importance of these traditional sectors has declined and new sectors like, information technology, pharmaceuticals and fast moving consumer goods have picked up. The trading volumes on exchanges have been witnessing phenomenal growth during the 1990s. The average daily turnover grew from about Rs. 150 crore in 1990 to Rs. 12,000 crore in 2000, peaking at over Rs. 20,000 crore. One-sided turnover on all stock exchanges exceeded Rs. 10,00,000 crore during 1998-99, Rs. 20,00,000 crore during 1999-2000 and approached Rs. 30,00,000 crore during 2000-01. However, it declined substantially to Rs. 986,954 crore in 2002-03. The turnover ratio, which reflects the volume of trading in relation to the size of the market, has been increasing by leaps and bounds after the advent of screen based trading system by the NSE. The turnover ratio for the year 2000-01 increased to 375 but fell substantially due to bad market conditions to 156 during 2002-03. The sectoral distribution of turnover has undergone significant change over last few years. The share of manufacturing companies in turnover of top 50 companies, which was nearly 80% in 1995-96, declined sharply to about 2% in 2002-03. During the same period the share of IT companies in turnover increased sharply from nil in 1995-96 to 75% in 2002-03.
Government Securities : The aggregate turnover in central and state government dated securities, including treasury bills, through SGL transactions increased 31 times between 1994-95 and 2001-02. During 2002-2003 it reached a level of Rs.19,55,731 crore, higher than combined trading volumes in equity segments of all the exchanges in the country, reflecting deepening of the market. The share of outright transactions in government securities increased from 23.2% in 1995-96 to 71.2% in 2002-03. The share of repo transactions declined correspondingly from 76.8% in 1995-96 to 28.8% in 200203. The share of dated securities in turnover of government securities increased from 69% in 1996-97 to 92% in 2001-02. The T-bills accounted for remaining SGL turnover. Derivatives Market : Derivatives trading commenced in India in June 2000. The total exchange traded derivatives witnessed a volume of Rs. 442,343 crore during 200203 as against Rs. 4,018 crore during the preceding year. While NSE accounted for about 99.5% of total turnover, BSE accounted for about 0.5% in 2002-03. The market
witnessed higher volumes from June 2001 with introduction of index options, and still higher volumes with the introduction of stock options in July 2001. There was a spurt in volumes in November 2001 when stock futures were introduced. It is believed that India is the largest market in the world for stock futures. Regulatory Framework The four main legislations governing the securities market are: (a) the SEBI Act, 1992 which establishes SEBI to protect investors and develop and regulate securities market; (b) the Companies Act, 1956, which sets out the code of conduct for the corporate sector in relation to issue, allotment and transfer of securities, and disclosures to be made in public issues; (c) the Securities Contracts (Regulation) Act, 1956, which provides for regulation of transactions in securities through control over stock exchanges; and (d) the Depositories Act, 1996 which provides for electronic maintenance and transfer of ownership of demat securities. Legislations SEBI Act, 1992: The SEBI Act, 1992 establishes SEBI with statutory powers for (a) protecting the interests of investors in securities, (b) promoting the development of the securities market, and (c) regulating the securities market. Its regulatory jurisdiction extends over corporates in the issuance of capital and transfer of securities, in addition to all intermediaries and persons associated with securities market. It can conduct enquiries, audits and inspection of all concerned and adjudicate offences under the Act. It has powers to register and regulate all market intermediaries and also to penalise them in case of violations of the provisions of the Act, Rules and Regulations made there under. SEBI has full autonomy and authority to regulate and develop an orderly securities market.
Securities Contracts (Regulation) Act, 1956 : It provides for direct and indirect control of virtually all aspects of securities trading and the running of stock exchanges and aims to prevent undesirable transactions in securities. It gives central government/SEBI regulatory jurisdiction over (a) stock exchanges through a process of recognition and continued supervision, (b) contracts in securities, and (c) listing of securities on stock exchanges. As a condition of recognition, a stock exchange complies with prescribed conditions of Central Government. Organised trading activity in securities takes place on a specified recognised stock exchange. The stock exchanges determine their own listing regulations which have to conform to the minimum listing criteria set out in the Rules. Depositories Act, 1996 : The Depositories Act, 1996 provides for the establishment of depositories in securities with the objective of ensuring free transferability of securities with speed, accuracy and security by (a) making securities of public limited companies freely transferable subject to certain exceptions; (b) dematerialising the securities in the depository mode; and (c) providing for maintenance of ownership records in a book entry form. In order to streamline the settlement process, the Act envisages transfer of ownership of securities electronically by book entry without making the securities move from person to person. The Act has made the securities of all public limited companies freely transferable, restricting the companys right to use discretion in effecting the transfer of securities, and the transfer deed and other procedural requirements under the Companies Act have been dispensed with.
Companies Act, 1956 : It deals with issue, allotment and transfer of securities and various aspects relating to company management. It provides for standard of disclosure in public issues of capital, particularly in the fields of company management and projects, information about other listed companies under the same management, and management perception of risk factors. It also regulates underwriting, the use of premium and discounts on issues, rights and bonus issues, payment of interest and dividends, supply of annual report and other information.
Rules and Regulations The Government have framed rules under the SCRA, SEBI Act and the Depositories Act. SEBI has framed regulations under the SEBI Act and the Depositories Act for registration and regulation of all market intermediaries, and for prevention of unfair trade practices, insider trading, etc. Under these Acts, Government and SEBI issue notifications, guidelines, and circulars which need to be complied with by market participants. Regulators Regulators The responsibility for regulating the securities market is shared by Department of Economic Affairs (DEA), Department of Company Affairs (DCA), Reserve Bank of India (RBI) and SEBI. The activities of these agencies are coordinated by a High Level Committee on Capital Markets. The orders of SEBI under the securities laws are appellable before a Securities Appellate Tribunal. Most of the powers under the SCRA are exercisable by DEA while a few others by SEBI. The powers of the DEA under the SCRA are also con-currently exercised by SEBI. The powers in respect of the contracts for sale and purchase of securities, gold related securities, money market securities and securities derived from these securities and ready forward contracts in debt securities are exercised concurrently by RBI. The SEBI Act and the Depositories Act are mostly administered by SEBI. The rules under the securities laws are framed by government and regulations by SEBI. All these are administered by SEBI. The powers under the Companies Act relating to issue and transfer of securities and non-payment of dividend are administered by SEBI in case of listed public companies and public companies proposing to get their securities listed.
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` AN OVERVIEW OF SECURITIES LAWS IN INDIA*

The two exclusive legislations that governed the securities market till early 1992 were the Capital Issues (Control) Act, 1947 (CICA) and the Securities Contracts (Regulation) Act, 1956 (SCRA). The CICA had its origin during the war in 1943 when the objective was to channel resources to support the war effort. Control of capital issues was introduced through the Defence of India Rules in May 1943 under the Defence of India Act, 1939. The control was retained after the war with some modifications as means of controlling the raising of capital by companies and to ensure that national resources were channeled into proper lines, i.e., for desirable purposes to serve goals and priorities of the government, and to protect the interests of investors. The relevant provisions in the Defence of India Rules were replaced by the Capital Issues (Continuance of Control) Act in April 1947. This Act was made permanent in 1956 and enacted as the Capital Issues (Control) Act, 1947. Under the Act, the Controller of Capital Issues was set up which granted approval for issue of securities and also determined the amount, type and price of the issue. This Act was, however, repealed in 1992 as a part of liberalization process to allow the companies to approach the market directly provided they issue securities in compliance with prescribed guidelines relating to disclosure and investor protection. Though the stock exchanges were in operation, there was no legislation for their regulation till the Bombay Securities Contracts Control Act was enacted in 1925. This was, however, deficient in many respects. Under the constitution which came into force on January 26, 1950, stock exchanges and forward markets came under the exclusive authority of the Central Government. The Government appointed the A. D. Gorwala Committee in 1951 to formulate a legislation for the regulation of the stock exchanges and of contracts in securities. Following the recommendations of the Committee, the SCRA was enacted in 1956 to provide for direct and indirect control of virtually all aspects of securities trading and the running of stock exchanges and to prevent undesirable transactions in securities. It has undergone several modifications since its enactment and even today an amendment is awaiting approval of the Parliament. It gives Central Government regulatory jurisdiction over (a) stock exchanges through a process of recognition and continued supervision, (b) contracts in securities, and (c) listing of securities on stock exchanges. As a condition of recognition, a stock exchange complies with conditions prescribed by Central Government. Organised trading activity in securities is permitted on recognised stock exchanges. The authorities have been quite sensitive to requirements of the development of securities market, so much so that the last decade (1992-2003) witnessed nine special legislative interventions, including two new enactments, namely the Securities and Exchange Board of India (SEBI) Act, 1992 and the Depositories Act, 1996. The SCRA, the SEBI Act and the Depositories Act were amended six, five and three times respectively during the same period. The developmental need was so urgent at times, that the last decade witnessed five ordinances relating to securities laws. Besides, a number of *
Adopted from the pilot paper titled Historical Perspective of Securities Laws authored by Shri M S Sahoo and published for 31st National Convention of the Institute of Company Secretaries of India held on September 11-13, 2003 at Agra.
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other legislations (the Income Tax Act, the Companies Act, the Indian Stamps Act, the Bankers Book Evidence Act, the Benami Transactions (Prohibition) Act etc.) having bearing on securities markets have been amended in the recent past to complement amendments in securities laws. The legal reforms began with the enactment of the SEBI Act, 1992, which established SEBI with statutory responsibilities to (i) protect the interest of investors in securities, (ii) promote the development of the securities market, and (iii) regulate the securities market. This was followed by repeal of the Capital Issues (Control) Act, 1947 in 1992 which paved way for market determined allocation of resources. Then followed the Securities Laws (Amendment) Act in 1995, which extended SEBIs jurisdiction over corporates in the issuance of capital and transfer of securities, in addition to all intermediaries and persons associated with securities market. It empowered SEBI to appoint adjudicating officers to adjudicate wide range of violations and impose monetary penalties and provided for establishment of Securities Appellate Tribunals (SATs) to hear appeals against the orders of the adjudicating officers. Then followed the Depositories Act in 1996 to provide for the establishment of depositories in securities with the objective of ensuring free transferability of securities with speed, accuracy and security. It made securities of public limited companies freely transferable subject to certain exceptions; dematerialised the securities in the depository mode; and provided for maintenance of ownership records in a book entry form. The Depositories Related Laws (Amendment) Act, 1997 amended various legislations to facilitate dematerialization of securities. The Securities Laws (Amendment) Act, 1999 was enacted to provide a legal framework for trading of derivatives of securities and units of CIS. The Securities Laws (Second Amendment) Act, 1999 was enacted to empower SAT to deal with appeals against orders of SEBI under the Depositories Act and the SEBI Act, and against refusal of stock exchanges to list securities under the SCRA. The next intervention is the SEBI (Amendment) Act, 2002 which enhanced powers of SEBI substantially in respect of inspection, investigation and enforcement. The latest and the ninth legislative intervention namely the Securities Laws (Amendment) Bill, 2003 was introduced in the Parliament to amend the SCRA to provide for demutualisation of stock exchange.
A. Repeal of Capital Issues (Control) Act, 1947

It is believed that a liberalised securities market helps promote economic growth. The more liberalised a securities market is, the better is its impact on economic growth. Interventions in the securities market were originally designed to help governments expropriate much of the seigniorage and control and direct the flow of funds for favoured uses. These helped governments to tap savings on a low or even no-cost basis. Besides government used to allocate funds from the securities market to competing enterprises and decide the terms of allocation. The result was channelisation of resources to favoured uses rather than sound projects. In such circumstances accumulation of capital per se meant little, where rate of return on some investments were negative while extremely remunerative investment opportunities were foregone. This kept the average rate of return from investment lower than it would otherwise have been and, given the cost of savings, the resulting investment was less than optimum. As a part of the liberalisation process, the CICA was repealed by an Ordinance on May 29, 1992 paving way for market determined allocation of resources. With this the office of Controller of Capital Issues was abolished and the cost of rationing the resources
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was saved. The Act earlier required a firm wishing to issue securities to obtain prior approval from the government, which also determined the amount, type and price of the issue. Now the eligible firms comply with the specified requirements and access the market to raise as much resources and at such terms as the market can bear. In the issues made through book building, the investors have freedom to subscribe for the securities at the prices they consider appropriate.
B. Enactment of the SEBI Act, 1992

Liberalisation does not mean scrapping of all codes and statutes. It rather means replacement of one set by another set of more liberal code / statute, which influence or prescribe the way the private sector agents should carry out their activities. In the context of securities market, the regulations are necessary for the following reasons: (i) The correction of identified market imperfections and failures. There are many potential market imperfections in securities market such as inadequate information, asymmetric information, difficulty in ascertaining the quality of contracts at the point of purchase, imprecise definitions of products and contracts, under-investment in information, agency costs and principal agent problems. In a regulation free environment, these imperfections impose costs on investors in securities. A high degree of information disclosure is required to make investors effective in the market place. If the regulation requires the issuer or intermediaries to provide necessary information, this adds cost to them but reduces cost on consumers. (ii) Substantial economies of scale to be derived from collective regulation and supervision of issuers and intermediaries. As investment contracts are longterm in nature and often involve a fiduciary role in a principal-agent relationship, there is need for continuous monitoring. In the absence of regulation and supervision by a specialist agency, which offers certain minimum standards, investors are required to spend time, effort and resources in investigating and monitoring issuers and intermediaries. This entails two types of costs: (a) substantial duplication and hence excessive social costs as all investors are duplicating the same process, (b) the loss of economies of scale that are derived through a specialist regulator/supervisor acquiring expertise and establishing effective authorization and monitoring system. In the absence of such an agency, an occasional investor would find investigation and monitoring excessive and free-rider problem are likely to arise. (iii) Signaling minimum standards of quality enhances confidence in markets. With a known asymmetric information problem, risk averse investors may exit the market altogether. In its extreme form the market breaks down completely as potential investors know there are high and low quality products but they cannot distinguish them ex ante, while the issuers can make the distinction but are unable or unwilling to communicate the distinction with credibility. When investors know there are low quality products in the market, good issuers and their products may become tarnished by the generalized reputation of poor products and suppliers. In such a case, the regulator is to set minimum standards and thereby remove the bad products from the market.
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With these objectives, it was considered necessary to create a statutory agency, which would ensure fair play in the market, develop fair market practices, prescribe and monitor conduct of issuers and intermediaries so that the securities market enables efficient allocation of resources. The enactment of the SEBI Act, 1992 was an attempt in this direction. Constitution : The Act established a Board, called Securities and Exchange Board of India (SEBI), to protect the interests of investors in securities and to promote the development of and to regulate the securities market. It prescribed that the Board would consist of a Chairman, one member each from amongst the officials of the finance ministry, the law ministry and the RBI and two other members. In order to avoid conflict of interest, it was provided that a member shall be removed from office if he is appointed as a director of a company. Functions : In addition to its general responsibility, it was assigned the following specific responsibilities: (a) regulating the business in stock exchanges and any other securities markets, (b) registering and regulating the working of stock brokers, sub-brokers, share transfer agents, bankers to an issue, trustee of trust deeds, registrars to an issue, merchant bankers, underwriters, portfolio mangers, investment advisors and such other intermediaries, (c) registering and regulating working of CIS, including mutual funds, (d) promoting and regulating self regulatory organizations (SROs), (e) prohibiting fraudulent and unfair trade practices relating to securities market, (f) promoting investor education and training of intermediaries, (g) prohibiting insider trading in securities, (h) regulating substantial acquisition of shares and takeover of companies, (i) calling for information from, undertaking inspection, conducting inquiries and audits of the stock exchanges, intermediaries and SROs, (j) performing such functions and exercising such powers under the SCRA as may be delegated by the Central Government, (This was done in the interest of integrated regulation. Then all the powers under the SCRA were exercisable by Central Government. Until SEBI stabilizes, it was considered desirable that important powers are not transferred from Central Government, but delegated to SEBI.) (k) levying fees or other charges for carrying the above purposes, (l) conducting research for the above purposes and (m) performing such other functions as may be prescribed. The Board was empowered to delegate any of its powers and functions under the Act (except powers to make regulations) to any member, officer of the Board or any other person. Autonomy and Accountability : The Central Government being accountable to Parliament, the SEBI Act granted powers of last resort to Central Government. It obligated SEBI, in exercise of its powers and performance of its functions, to be bound by the
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directions of the Central Government on questions of policy. Whether a question is one of policy or not shall be decided by the Central Government. Further, the Central Government was empowered to supersede the Board for a period not exceeding six months if it is of the opinion that the Board is unable to discharge the functions and the duties under the Act on account of grave emergency, or the Board has persistently defaulted in complying with any directions issued by the Central Government under the Act and as a result of such default the financial position or the administration of the Board has deteriorated, or the circumstances exist which render it necessary in the public interest to do so. The Board was obligated to furnish to the Central Government such returns and statements and such particulars in regard to any proposed or existing programme for the promotion and development of the securities market, as the Central Government may, from time to time, require. The Board was also obligated to submit to Central Government a report in the prescribed form giving a true and full account of its activities, policy and programmes during the previous year within 60 days (increased to 90 days by 1995 amendment) of the end of each financial year. A copy of this report shall be laid before each house of parliament. While the Act empowered Central Government to make rules for carrying out the purposes of the Act, it empowered SEBI to make regulations, with the previous approval of Central Government, consistent with the Act and the rules, to carry out the purposes of the Act. In order to ensure accountability, it was provided that all the rules and regulations made under the Act shall be laid before each house of parliament. It was also provided that any person aggrieved by an order of the Board under the Act may prefer an appeal to the Central Government. The Act empowered Central Government to exempt, in public interest, any person or class of persons dealing in securities from the requirements of registration. In the interest of autonomy of SEBI, it was empowered to levy fees or other charges for carrying on the purposes of the Act. This power to levy fees has been upheld by the Supreme Court in the matter of BSE Brokers Forum and others v. SEBI and Others. It was provided that no court shall take cognisance of any offence punishable under the Act or any rules or regulations made thereunder except on a complaint made by the Board with the approval of Central Government. It was further provided that no suit, prosecution or other legal proceedings shall lie against central government or any officer of the Central Government or any member, officer or other employee of the Board for anything which is in good faith done or intended to be done under this Act or the rules or regulations made thereunder. Amendments in SCRA : All the powers under the SCRA were exercised by Central Government. The SEBI Act, however, created a Board to regulate the securities market. In the interest of integrated regulation of securities market, it was felt that only one agency (SEBI) as far as possible, should regulate the securities market. In order to do so, the SEBI Act transferred some of the powers of the Central Government under the SCRA to SEBI and empowered Central Government to delegate other powers, except power to make rules, under the SCRA to SEBI. In exercise of this power, Central Government has delegated almost all the powers under the SCRA by notifications issued in 1992 and 1994. All the powers under the Securities Contracts (Regulation) Rules, 1957 have also been transferred to SEBI in 1996. Trading of government securities was not subject to any regulatory framework as these were not securities under the SCRA. In order to develop the market for government
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securities, the definition of securities was amended to include government securities within its ambit so that the whole regulatory framework applicable to trading of securities could apply to trading government securities also. Further, in order to avoid frequent amendments, which is time consuming, the SCRA was amended to empower Central Government to declare any other similar instrument to be securities.
C. Securities Laws (Amendment) Act, 1995

In the light of experience gained with the working of the SEBI Act, 1992, it was considered desirable to expand the jurisdiction of SEBI, enhance its autonomy and empower it to take a variety of punitive actions in case of violations of the Act. Composition of Board : As mentioned earlier, the SEBI Act made it obligatory for the central government to remove a member from the Board if he was appointed as a director of any company. This was presumably to ensure that a person would not be able to do justice to his roles as member of Board and as a member of board of directors of a company simultaneously. His interests as member of Board might clash with that of a director of a company. SEBI, being a quasi-judicial body, the members of the Board were not just expected to be impartial, they should also appear impartial. This was precluding the appointment of people with adequate knowledge and experience in the area of securities market to Board as many of them were also involved with corporate management in various capacities. The amendment Act deleted the provision relating to disqualification of a member of Board on his being appointed as a director of a company from the statute. It inserted a new provision to make it obligatory for a member of Board, who is director of any company and who has any direct or indirect pecuniary interest in any matter coming up for consideration at a meeting of the Board, to disclose the nature of interest and refrain from participating in the deliberations or decisions of the Board with respect to that matter. Now the government can appoint people of eminence with experience in matters relating to securities market to Board. This was expected to improve the decision making potential of SEBI and enable Board to lead and guide more effectively the team of professionals working for SEBI. Jurisdiction of SEBI : The jurisdiction of SEBI was enlarged to register and regulate a few more intermediaries and other persons associated with the securities market. The amendment Act empowered SEBI to register and regulate the working of the intermediaries like depositories, custodians for securities and also certain other persons associated with the securities market like foreign institutional investors, credit rating agencies, venture capital funds etc. SEBI was also given authority to regulate other intermediaries or persons, not named specifically in the statute, by specifying them through a notification. This obviated the need for amending SEBI Act every now and then to deal with a particular type of intermediary or a person associated with the securities market that may emerge in future. Monetary Penalties : The SEBI Act originally provided for penalty of suspension and cancellation of a certificate of registration of an intermediary. Such suspension/ cancellation led to cessation of business and affected innocent third parties, often adversely, who were dealing with the intermediary. Besides there were many persons other than intermediaries associated with the securities market on whom the penalty of suspension/cancellation had no bearing. In order to tackle this, the amendment Act provided for monetary penalties as an alternative mechanism to deal with capital market violations.
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SEBI was empowered to adjudicate a wide range of violations and impose monetary penalties on any intermediary or other participants in the securities market. The amendment Act listed out a wide range of violations along with maximum penalties leviable. It provided for a highest penalty of Rs.10 lakh and the violations listed were failure to submit any document, information or furnish any return, failure to maintain required books of accounts or records, carrying on any CIS (Collective Investment Scheme) without registration, failure to enter into agreement with clients, insider trading, failure to redress the grievances of investors, failure to issue contract notes, charging excessive brokerage by brokers, failure to disclose substantial acquisition of shares and take-overs, etc. The amendment Act provided for three types of monetary penalties viz., - (a) a lump sum penalty for a specific violation of the Act, (b) a penalty for every day during which the violation continued, and (c) a multiple of the amount involved in the violation. The amount of penalty was determined, subject to the ceiling, by the adjudicating officer who would be guided by the factors including amount of disproportionate gain or unfair advantage wherever quantifiable made as a result of the default, the amount of loss caused to an investor or any group of investors as a result of default, and the repetitive nature of the default. It amended section 24 to provide that non-payment of penalty would be an offence punishable with fine or imprisonment under the Act. The adjudicating officer is required to be appointed by SEBI. He shall not be an officer below the rank of a division chief of SEBI. He will hold an enquiry after giving a person reasonable opportunity of being heard for the purpose of determining if any violation has taken place and imposing penalty. To ensure fair enquiry and penalty, it was provided that appeal against the orders of adjudicating officers would lie to the SAT, which was also constituted by the amendment Act. While the suspension or cancellation of registration continued to be regulated by regulations framed by SEBI and the appeal from the orders of the Board suspending or canceling a registration would lie to Central Government, the amendment Act provided that the monetary penalties would be imposed only in cases of violations listed in the Act by an adjudicating officer as per the Rules prescribed by the Central Government. Appeals from the orders of an adjudicating officer can be preferred to the SAT. The appeals against the orders of SAT can be preferred to the High Court. Empowerment : The amendment Act inserted section 11B to empower SEBI to issue directions to all intermediaries and other persons associated with the securities market (i) in the interest of investors, (ii) in the interest of orderly development of the securities market, (iii) to prevent the affairs of any intermediary including a mutual fund from being conducted in a manner detrimental to the interest of investors or of the securities market, or (iv) to secure the proper management of any such entity. The Act also empowered SEBI to call for and furnish to any agency such information as necessary for efficient discharge of its functions. It vested SEBI with powers of a civil court under the Code of Civil Procedure, 1908 in respect of the following: (i) summon and enforce attendance of person and examine them on oath, (ii) inspect any books, register and other documents, (iii) discover and enforce production of books of accounts and other documents. These helped SEBI considerably to carry out investigations, conduct inquires and inspections and levy fines against the erring intermediaries, issuers of securities and other persons associated with the securities market. SEBI was also empowered to call for information and conduct enquiries, audits and inspection of mutual funds, and
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other persons associated with the securities market, in addition to stock exchanges, self regulatory organizations and intermediaries provided earlier. Autonomy of SEBI : The autonomy of SEBI was reinforced by the following provisions: (i) SEBI was vested with the powers of a civil court; (ii) Section 20A barred the jurisdiction of civil court in respect of actions or orders passed by SEBI. One can, however, prefer an appeal to the Central Government against the orders of SEBI and the jurisdiction of the High Court was not barred. This made SEBIs functioning independent of the lower civil courts and allowed quick disposal of cases by SEBI without being hamstrung by stay orders from civil courts; (iii) Section 23 was amended to extend the immunity from suit, prosecution or other legal proceedings to SEBI or any of its members, officers or employees in respect of action taken in good faith; (iv) Section 26 was amended to permit SEBI to file complaints in Courts under section 24 in respect of offences under the SEBI Act without previous sanction of the Central Government which was mandatory then even for filing routine prosecutions; (v) By amendment to section 28, the power of last resort of the Central Government to exempt any person or class of persons dealing with securities market from the requirement of registration with SEBI was withdrawn; (vi) Sections 29 and 30 were amended to amended to provide that the conditions for grant of registration would be determined by Regulations and not by Rules; (vii) Section 30 was amended to provide that the SEBI can notify regulations without approval of the Central Government. These enabled SEBI to respond speedily to changing market conditions and enhance its autonomy. SEBI was armed with better weapons to regulate various participants in the securities market. The amendment Act provided that henceforth the conditions of registration shall be determined by Regulations and not under Rules as used to be before the amendment. The enactment of Rules under the Act is the prerogative of the Central Government and is a very time consuming process in contrast to Regulations which required only prior approval of Central Government. By this amendment, the requirement of prior approval was dispensed and the regulation making was brought within the exclusive domain of SEBI. This enabled SEBI to expeditiously notify and modify regulations to keep pace with rapidly changing market conditions, facilitate maintenance of market discipline, prudence and transparency and thereby strike on time. Securities Appellate Tribunal : An efficient and effective system of regulation calls not only for firmness, but also for fairness. The amendment Act provided for establishment of one or more SATs to hear the appeals from the orders of the adjudicating officers. Anybody not satisfied with the orders of the SAT can prefer an appeal to the High Court. This ensured fairness in the process of adjudication. Amendments in SCRA : The amendment Act also amended SCRA. In the last few years there has been substantial improvements in the functioning of the securities market. However there were inadequate advanced risk management tools. In order to provide such tools and to deepen and strengthen the cash market, a need was felt for trading of derivatives like futures and options. But it was not possible in view of prohibitions in the SCRA. Its preamble stated that the Act was to prevent undesirable transactions in securities by regulating business of dealing therein, by prohibiting options, etc. Section 20 of the Act explicitly prohibited all options in securities. Section 16 of the Act empowered Central Government to prohibit by notification any type of transaction in any security. In exercise of this power, government by its notification in 1969 prohibited all
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forward trading in securities. Introduction of trading in derivatives required withdrawal of these prohibitions. The amendment Act withdrew the prohibitions by repealing section 20 of the SCRA and amending its preamble. Traditionally the operations of the stock exchanges were limited to the area earmarked at the time of its recognition. This prevented an exchange from expanding its operations beyond the area, though it was considered desirable to introduce competition among the exchanges and technology permitted such expansion. The SCRA was amended to allow an exchange to establish additional trading floor outside its area of operation with approval of SEBI. The SCRA, before the amendment, provided that SEBI could compel a company to list its securities on any stock exchange. Such coercion from authorities was not considered desirable in the liberalised market environment. This provision was removed from the SCRA. The exchanges enter into listing agreements with the listed companies. The agreement casts a lot of obligations on the listed companies in the interest of investors. However, this agreement was not having any statutory backing. As a result, in cases of noncompliance with listing agreement, the exchanges used to suspend / withdraw trading of the security, which was not in the interest of investors. In order to provide statutory backing to listing agreement, which is being increasingly used to improve corporate governance, it was prescribed that where securities were listed on the application of any person, such person shall comply with the conditions of listing with the stock exchange. The rules made under the SCRA used to be published before formal notification. Though this practice helped to consult the regulated and the public on the proposed rules, it was time consuming and the regulated could derive regulatory arbitrage before the new rule came to effect. The Amendment Act did away with the requirement of previous publication.
D. The Depositories Act, 1996

The system of transfer of ownership of securities prevailing till mid 1990s was grossly inefficient as every transfer was required to be accomplished by the physical movement of paper securities to the issuer for registration and the ownership was evidenced by the endorsement on the security certificate. The process of transfer in many cases took much longer time than two months stipulated in the Companies Act, 1956 or the SCRA. A significant proportion of transactions ended up as bad delivery due to faulty compliance of paper work, mismatch of signatures on transfer deeds with the specimen records of the issuer or for other procedural reasons. Theft, forgery, mutilation of certificates and other irregularities were rampant. The inherent right of the issuer to refuse the transfer of a security added to the misery of the investors. The cumbersome paraphernelia associated with the transfer of securities under section 108 of the Companies Act, 1956, along with huge paper work, printing of stationary, safe custody of securities, transportation and dispatch added to the cost of servicing paper securities, delay in settlement and restricted liquidity in securities and made investor grievance redressal time consuming and at times intractable. All these problems had not surfaced overnight but these were compounded by burgeoning trade volumes in secondary market and increasing dependence on securities market for financing trade
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and industry. This underscored the need for streamlining the transfer of ownership of securities which was sought to be accomplished by the Depositories Act, 1996. The Act provides a legal basis for establishment of depositories in securities with the objective of ensuring free transferability of securities with speed, accuracy and security by (a) making the securities of public limited companies freely transferable; (b) dematerializing the securities in the depository mode; and (c) providing for maintenance of ownership records in a book entry form. Legal Basis : The Depositories Act, 1996, read with section 12 of the SEBI Act, 1992, provides a legal basis for establishment of multiple depositories and entrusts them with responsibility of maintaining ownership records of securities and effecting transfer of securities through book entry only. The depositories render, through participants, any service connected with recording of: (a) allotment of securities; and (b) transfer of ownership of securities. By fiction of law under section 10 of the Depositories Act, the depository is deemed to be registered owner of securities with the limited purpose of effecting transfer of ownership of security. In respect of securities held in a depository, the name of the depository appears in the records of the issuer as registered owner of securities. The depository has right to effect the transfer of securities and shall not have any other right associated with them. The owners of the securities become beneficial owners on the records of the depository in respect of the securities held in a depository. The beneficial owner has all the rights and liabilities associated with the securities. The depositories holding the securities maintain ownership records in the name of the each participant. Each such participant, as an agent of the depository, in turn, maintains ownership records of every beneficial owner in book entry form. The depository and participants have a principal and agent relationship and their relations are governed by the bye-laws of the depository and the agreement between them. Both the depository and participant need to be registered with SEBI under section 12 of the SEBI Act, 1992, and are regulated by SEBI. Only a company formed and registered under the Companies Act, 1956 can be registered as a depository. However, before commencing business, the depository registered with SEBI has to obtain a certificate of commencement of business from SEBI. Such certificate is issued by SEBI on being fully satisfied that the depository has adequate systems and safeguards to ensure against manipulation of records and transactions. SEBI is empowered to suspend or cancel the certificate of registration of a depository as well as of the participants after giving a reasonable opportunity of hearing. The ownership records of securities maintained by depositories/participants, whether maintained in the form of books or machine readable form, shall be accepted as prima facie evidence in legal proceedings. The depository is treated as if it were a bank under the Bankers Books of Evidence Act, 1891. The depository services shall be available in respect of the securities as may be specified by SEBI. The type of securities and the eligibility criteria for admission to the depository mode shall be determined by SEBI regulations. This provides the flexibility to SEBI, for example, to admit certain instruments like units of mutual funds and prohibit
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admission of certain securities like shares of private limited companies from depository mode. Free Transferability of Securities : The securities of all public companies have been made freely transferable. The Act took away the companies right to use discretion in effecting transfer of securities by deleting section 22A from the SCRA and by inserting section 111A in the Companies Act, 1956. These provisions, read with section 7 of the Depositories Act make the transfer of securities in any company, whether listed or not, other than a private company and a deemed public company, free and automatic. That is, once the agreed consideration is paid and the purchase transaction is settled, the buyer is automatically entitled to all the rights associated with the security. As soon as the intimation regarding delivery of security against the payment of cash (delivery v. payment) is received, the transfer will be effected by the depository or company and the transferee will enjoy all the rights and obligations associated with the security immediately. If the securities are in the depository mode, depository would effect the transfer on the basis of intimation (contract notes or some other suitable evidence) from the participants. If the securities are outside the depository mode, the company would effect the transfer on receipt of the transfer deed. For the securities in the depository mode, no transfer deed is required and other procedural requirements under section 108 of the Companies Act were dispensed with. The transferee in both the modes would be entitled to all the rights including voting rights and obligations associated with security. However, if it is felt that the transfer of a security is in contravention of any of the provisions of the SEBI Act, 1992 or Regulations made thereunder or Sick Industrial Companies (Special Provisions) Act (SICA), 1985, the company, depository, participant, investor or SEBI can make an application to the Company Law Board (CLB) to determine if the alleged contravention has taken place. After enquiry, if the CLB is satisfied of the contravention, it can direct the company/ depository to make rectification in ownership records. In other words, transfer has to be effected immediately even if the transfer is contravention of SEBI Act, 1992 or SICA, 1985, subject to subsequent rectification by the direction of CLB. Pending the completion of enquiry, CLB can suspend voting rights in respect of securities so transferred. The transferee will continue to enjoy economic rights (bonus, dividend, rights etc) which cannot be suspended under any circumstances. During the pendency of the application with CLB, the transferee can transfer the securities and such further transfer will entitle the transferee to the voting rights also unless the voting rights in respect of transferee has also been suspended. Dematerialisation of Securities : Section 9 of the Depositories Act provides that the securities held by a depository shall be dematerialized and be fungible. The Act envisages dematerialization of securities in the depository mode as against immobilization of securities. The later refers to a situation when the depositories hold securities in physical form side by side with ownership records. In such a case physical movement of securities does not accompany the transfers but securities are in existence in the custody of the depository. What the Act envisages is that ownership of securities shall be reflected through book entry system and this will not require existence of securities certificates. However, the securities outside the depository would be represented by physical security certificate. Supremacy of Investor : The investor has been given the option between holding
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physical securities as at present or opting for a depository based ownership records. At the time of fresh issue, the issuer is under obligation to give the option to the investors either to seek physical securities under the existing paper based system (non-depository mode) or opt for book entry system of recording ownership (depository mode). The decision on whether or not to hold securities within the depository mode, if in depository mode, which depository or participant, would be entirely with the investor. Such freedom can be exercised either at the time of the initial offer of the security by indicating his choice in the application form or at any subsequent time. He will also have the freedom to switch from depository mode to non-depository mode and vice versa. At the time of initial offer, if the investor opts to hold a security in the depository mode, the issuer shall be intimate concerned depository the details of allotment of securities and record the depository as registered owner of the securities. On receipt of such information, the depository shall enter in its records the names of allottees as the beneficial owners. An investor who holds physical securities and seeks to avail the services of a depository will surrender the certificates to the issuer. The issuer on receipt of certificates shall cancel them and substitute in its records the name of the depository as a registered owner in respect of that security and inform the depository accordingly. The depository shall thereafter enter the name of the investor in its records as beneficial owner. If a beneficial owner or a transferee of securities seeks to opt out of a depository in respect of any security, he shall inform the depository of his intention. The depository in turn shall make appropriate entries in its records and shall inform the issuer. The issuer shall make arrangements for the issue of certificate of securities to the investor. The depository shall record all transfers made within the depository mode on receipt of intimation from a participant. The type of intimation would be specified by SEBI regulations. An investor, before availing the services of a depository, shall enter into an agreement with a depository through a participant. The participant is also required to enter into an agreement with the depository to act as the latters agent. There will also be an agreement between the depository and the issuer of securities. The rights and obligations of depositories, participants, issuers and investors would be governed by the agreement among them, the bye-laws of the depository and the regulations of SEBI. Amendments in Other Acts : To provide for the smooth operation of the depositories, the Depositories Act amended a few other Acts such as the Indian Stamps Act, 1989, the Companies Act, 1956, the Securities Contracts (Regulation) Act, 1956, the Income-tax Act, 1961, the Benami Transactions (Prohibition) Act, 1988 and the Securities and Exchange Board of India Act, 1992. The major amendments in these Acts are discussed below: Amendment to the Indian Stamps Act : Section 8A was inserted in the Indian Stamps Act to provide for the following : (i) At the time of issue of securities, shares or otherwise, the issuer shall pay the Stamp duty on the total amount of the security issued by it, whether through a depository or direct to investors, even though there will be no physical securities (instrument) which can be stamped (executed).
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SUPPLEMENT FOR SECURITIES LAWS & REGULATION OF FINANCIAL MARKETS (ii) Entry into depository involves change of registered ownership as the investor becomes the beneficial owner and the depository becomes the registered owner in respect of the security. As it involves change in registered ownership, it attracts stamp duty under the existing provisions. The new section 8A, however, exempted such change of registered ownership of shares from an investor to a depository from the stamp duty. (iii) All transactions of securities involving change in registered ownership and/or beneficial ownership of shares within the depository mode shall not attract any stamp duty. (iv) If an investor opts to exit from the depository and seeks the issue of physical certificate of securities from the issuer, the issue of such certificates shall attract stamp duty as is payable on the issue of duplicate certificates. (v) All transactions outside the depository mode shall attract stamp duty as at present.
Amendments to the Income Tax Act : Sub-section 2A was inserted in section 45 to provide that the depositories as well as the participants would not be liable to pay any capital gains tax in respect of profits or gains arising from transfer securities held in depositories and transacted from time to time since these securities are held on behalf of the beneficial owners. In other words, inter-se transfer of securities between the participants in the books of a depository as well as between the depositories in the records of an issuer shall not be treated as transfer unless it involves change in beneficial ownership. If it involves any change in the beneficial ownership, only the beneficial owner shall be chargeable to capital gains tax, not the registered owner. Due to fungible characteristic of the securities, while calculating capital gains tax, the cost of acquisition of securities shall not be determined with reference to cost of acquisition of specific identifiable securities, but be ascertained on the principle of first in first out. That is, the securities acquired first by the beneficial owner would be deemed to have been transferred first irrespective of the intention of the investor. This principle would be applicable only in respect of securities held in a depository. Amendment to the Companies Act : Section 83 of the Companies Act was deleted. This did away with the mandatory requirement of each company limited by shares to distinguish the shares by distinguishing numbers, in order to introduce the concept of fungibility. The abolition of section 83, however, did not prohibit a company from having distinct numbers, although there was no mandatory requirement to that effect. However Section 83 was restored vide the Depository Related Law (Amendment) Act, 1997, the details of which is covered in Point 'E'. Section 108 was amended to provide that the provisions of section 108 shall apply to transfer of securities effected outside the depository mode. The provisions of section 108 shall not apply to transfers of securities effected within the depository mode. Section 111 was amended to provide that the provisions of section 111 shall apply to a private company and a deemed public company. The new section 111A was inserted to govern the transfer of securities of a public limited company. The shares or debentures and any interest therein of a company were made freely transferable and all the rights and obligations associated with them immediately accrue to the transferee. However, if
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the transfer violates any of the provisions of the SEBI Act, 1992 or SICA, 1985, the depository, company, participant, investor or SEBI can make an application to the CLB. The CLB, pending completion of enquiry may make an interim order to suspend the voting rights in respect of those securities, and on completion of the enquiry, may direct the company or depository to rectify the register or records if transfer is in violation of the aforesaid provisions. During the pendency of the application with CLB, the economic rights accrue to the transferee and the transferee has a right to transfer the securities further and such further transferee shall be entitled to voting rights also.
E. The Depository Related Laws (Amendment) Act, 1997

While amending the Depositories Act, 1996, this amendment Act amended the Companies Act, 1956, the Indian Stamp Act, 1899, the State Bank of India Act, 1955, the State Bank of India (Subsidiary Banks) Act, 1959, the Industrial Development Bank of India Act, 1964, the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970, and the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980 to facilitate dematerialization of securities. The Act amended the Depositories Act to provide that the provision of the Companies Act relating to securities held in trust shall not apply to a depository in respect of such securities, even though the depository is the registered owner of the securities. It restored section 83 in the Companies Act relating to distinct numbers for securities. However, the securities held in a depository may not have distinct numbers. It amended section 111A to restrict free transferability of securities provided originally in the Depositories Act, 1996. It provided that if a company refuses to register securities within 2 months, the transferee can appeal before the CLB for registration of securities in his favour. It also provided that if the transfer is in violation of any law for the time being in force, the depository, depository participant, company, SEBI or investor may apply to CLB within 2 months for rectification of register or records. It amended the Indian Stamp Act to exempt stamp duty on transfer of beneficial ownership of units of mutual funds dealt with by a depository. (Subsequently the stamp duty was exempted on transfer of beneficial ownership of debt securities.)
F.
Securities Laws (Amendment) Act, 1999
This Act has inserted provisions relating to derivatives, units of CIS and delegation of powers under the SCRA to RBI. Derivatives : Despite withdrawal of prohibitions on derivatives by the Securities Laws (Amendment) Act, 1995, the market for derivatives, however, did not take off, as there was no regulatory framework to govern trading of derivatives. SEBI set up a 24 member Committee under the Chairmanship of Dr. L. C. Gupta on 18th November 1996 to develop appropriate regulatory framework for derivatives trading in India. The Committee submitted its report on March 17, 1998 recommending among others, that the derivatives may be declared as securities under section 2(h) (ii)(a) of the SCRA, so that the regulatory framework applicable to trading of securities could govern trading of derivatives also. Section 2 (h) of the SCRA, which provides an inclusive definition of securities, empowers Central Government to declare such other instruments as securities. Government, however, did not declare derivatives to be securities, rather amended the SCRA, to explicitly define securities to include derivatives, probably because its power to declare any instruments as securities was limited by the words such other.
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The Securities Contracts (Regulation) Amendment Bill, 1998 was introduced in the Lok Sabha on 4th July 1998 proposing to expand the definition of securities to include derivatives within its ambit so that trading in derivatives could be introduced and regulated under the SCRA. The Bill was referred to the Standing Committee on Finance (SCF) on 10th July 1998 for examination and report thereon. The Committee submitted its report on 17th March 1999. The committee was of the opinion that the introduction of derivatives, if implemented with proper safeguards and risk containment measures, will certainly give a fillip to the sagging market, result in enhanced investment activity and instill greater confidence among the investors/participants. The Committee after having examined the Bill and being convinced of the needs and objectives of the Bill approved the same for enactment by Parliament with certain modifications. The Bill, however, lapsed following the dissolution of 12th Lok Sabha. A fresh bill, the Securities Laws (Amendment) Bill 1999 was introduced in the Lok Sabha on 28th October 1999 incorporating the amendments proposed in the Securities Contracts Regulation (Amendment) Bill, 1998 as well as the modifications suggested by the SCF. This Bill was converted into an Act on 16th December 1999. The Act inserted clause (aa) in section 2 to define derivatives to include: (a) a security derived from a debt instrument, share, loan whether secured or unsecured, risk instrument or contract for differences or any other form of security, and (b) a contract which derives its value from the prices, or index of prices, of underlying securities. It also inserted sub-clause (ia) in section 2 (h) to include derivatives within the ambit of securities. Since derivative contracts are generally cash settled, these may be classified as wagers. The trading in wagers being null and void under section 30 of the Indian Contracts Act 1872, it may be difficult to enforce derivatives contracts. In order to avoid such legal uncertainties, a new section 18A was inserted to provide that notwithstanding anything contained in any other law for the time being in force, contracts in derivatives shall be legal and valid if such contracts are traded on a recognised stock exchange and settled on its clearing house in accordance with rules and bye-laws of such stock exchange. Section 23 was amended to provide that any body who enters into contract in contravention of section 18A shall be punishable. By a notification issued on 1st March 2000, Government lifted the three-decade-old prohibition on forward trading in securities by rescinding 1969 notification. This prohibition was imposed by government in exercise of its powers under section 16 of the SCRA by a notification issued on 27th June 1969 in order to curb certain unhealthy trends that had developed in the securities market at that time and to prevent undesirable speculation. In the changed financial environment, the relevance of this prohibition had vastly reduced. Through appropriate amendments in the byelaws of the stock exchanges, carry forward transactions in securities were permitted. Similarly, periodic amendments to the aforesaid notification were made to permit 'repo' transactions in government securities by authorised intermediaries. Even though the notification of 1969 was in force, exceptions had been carved out in course of time as market needs changed and some form of forward trading (carry forward/ready forward) was prevalent. The provisions in the SCRA and the regulatory framework developed thereunder govern the trading in securities. The amendments of the SCRA to include derivatives within the ambit of securities in the SCRA made trading in derivatives possible within the framework of that Act.
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Collective Investment Scheme (CIS) : During mid 1990s, many companies especially plantation companies had been raising capital from investors through schemes, which were in the form of CIS. Though SEBI is authorised under the SEBI Act, 1992 to register and regulate CIS, there was no suitable regulatory framework to allow an orderly development of market for CIS units/instruments by them. Since SEBIs jurisdiction is limited to protect the interests of investors in securities, it could not take steps to protect the interests of investors in CIS units which were not securities. In order to allow for this and to strengthen the hands of SEBI to protect interests of investors in plantation companies, the Act amended the definition of securities to include within its ambit the units or any other instruments issued by any CIS to the investors in such schemes. The Act empowered the Central Government to make rules to provide for the requirements, which shall be complied with by CIS for the purpose of getting their units listed on any stock exchange. Such rules have been incorporated in the Securities Contracts (Regulation) Rules. This is aimed at an orderly development of market for these units while protecting the interest of investors therein. The Act also inserted a definition of the CIS in the SEBI Act, 1992. The CIS was defined to mean any scheme or arrangement made or offered by any company under which (a) the contributions, or payments made by the investors, by whatever name called, are pooled and utilised solely for the purposes of the scheme or arrangement; (b) the contributions or payments are made to such scheme or arrangement by the investors with a view to receive profits, income, produce or property whether movable or immovable from such scheme or arrangement; (c) the property, contribution or investment forming part of scheme or arrangement, whether identifiable or not, is managed on behalf of the investors; and (d) the investors do not have day to day control over the management and operation of the scheme or arrangement. The CIS, however, does not include any scheme or arrangement (a) made or offered by a cooperative society, (b) under which deposits are accepted by non banking financial companies, (c) being a contract of insurance, (d) providing for any Scheme, Pension Scheme or the Insurance Scheme framed under the Employees Provident Fund and Miscellaneous Provision Act, 1952, (e) under which deposits are accepted under section 58A of the Companies Act, 1956, (f) under which deposits are accepted by a company declared as Nidhi or mutual benefit society under section 620A of the Companies Act, 1956, (g) falling within the meaning of Chit business as defined in clause (d) of section 2 of the Chit Fund Act, 1982 and (h) under which contributions made are in the nature of subscriptions to a mutual fund. Delegation of Powers to RBI : The Government had power to delegate regulatory authority to SEBI. To provide additional flexibility, the Act amended section 29A of the SCRA so as to empower the Central Government to delegate powers to RBI also along with SEBI, to enable the former to regulate transactions under the SCRA as may be necessary. Now the Central Government, SEBI, and the RBI depending on their jurisdiction as may be mutually agreed upon can exercise the powers under the Act. With the repeal of the 1969 notification in 2000, the then prevailing regulatory framework, which governed repo transactions, disappeared. It was, therefore, necessary to work out an arrangement whereby the regulators could regulate such transactions. In pursuance to this and in exercise of its newly acquired power, Central Government issued a notification on 2nd March 2000 delineating the areas of responsibility between RBI and SEBI. In terms of this notification, the powers exercisable by Central Government under section 16 of the SCRA in relation to the contracts in government securities, gold
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related securities, money market securities and in securities derived from these securities and in relation to ready forward contracts in bonds, debentures, debenture stock, securitised debt and other debt securities shall also be exercised by RBI. Such contracts, if executed on stock exchanges, shall, however, be regulated by (i) the rules and regulations or the byelaws made under the SCRA, or the SEBI Act or the directions issued by SEBI under these Acts, (ii) the provisions contained in the notifications issued by RBI under the SCRA, and (iii) the rules or regulations or directions issued by RBI under the RBI Act, 1934, the Banking Regulations Act, 1949 or the Foreign Exchange Regulation Act, 1973. RBI and SEBI have also issued consequential notifications on 2nd March 2000 specifying the regulatory framework in their respective areas. In terms of RBI notification, no person can enter into any (a) contract for the sale or purchase of government securities, gold related securities and money market securities other than spot delivery contract or such other contracts traded on a recognised stock exchange as is permissible under the SCRA, rules and byelaws of such stock exchange, and (b) ready forward contracts in bonds, debentures, debentures stock, securities debt, and other debt securities. Ready forward contracts may, however, be entered into by permitted persons in all government securities put through the Subsidiary General Ledger Account held with RBI in accordance with terms and conditions as may be specified by RBI. SEBI by its notification has prohibited all contracts in securities other than such spot delivery contract or contract for cash or hand delivery or special delivery or contract in derivatives as is permissible under the SCRA or the SEBI Act and rules and regulations made thereunder and rules, regulations and byelaws of a recognised stock exchange.
G. The Securities Laws (Second Amendment) Act, 1999

The SCRA provided the right of appeal before the Central Government against refusal, omission or failure by a stock exchange to list the securities of any public company. The SEBI Act, 1992 provided for two kinds of appeals. Under section 20 of the Act, any person aggrieved by any order of the SEBI under the Act or rules or regulations made thereunder, may prefer an appeal to the Central Government. Accordingly, the Central Government had notified the SEBI (Appeal to the Central Government) Rules, 1993 and constituted an Appellate Authority for disposal of appeals. Section 15K of the Act provided for establishment of one or more Securities Appellate Tribunal (SAT) to hear appeals from orders of adjudicating officer of SEBI imposing monetary penalty as per Rules framed by the Central Government. Government has accordingly established a SAT at Mumbai to hear appeals from the orders of adjudicating officers. Under section 23 of the Depositories Act, 1996, any person aggrieved by an order of SEBI under the Depositories Act 1996 or Rules and Regulations made thereunder may prefer an appeal to the Central Government. Accordingly, the Central Government had notified the Depositories (Appeal to the Central Government) Rules, 1998 and constituted an Appellate Authority for disposal of appeals. Thus the Central Government was conferred with powers to dispose of appeals in respect of all matters (except disposal of appeals against the orders of adjudicating officer under the SEBI Act, 1992) under all the three Acts. In addition, the Central Government was empowered to issue directions to SEBI and make rules under these Acts. It was empowered to approve / amend / make rules/ byelaws / regulations of the stock exchanges. Further, Central Government was represented on the management of SEBI as well as of the stock exchanges. The
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powers of the Central Government to issue directions and to make rules and appoint members of the SEBI as well as all governing bodies of the stock exchanges were perceived as compromising on its appellate powers. The Appellate Authorities appointed by the government under the SEBI Act and the Depositories Act had been receiving and disposing of appeals in accordance with the Rules. However, since government constituted these, their orders were perceived at times as orders of the government. When an order of SEBI was struck down, even on merits, there was a feeling that SEBIs autonomy as the regulator has been compromised. In order to remove such misgivings and impart transparency and impartiality to the process of disposal of appeals and to make the administration of penal provisions in the securities laws by the regulators more accountable and impartial, the Securities Laws (Second Amendment) Act 1999 amended all the three Acts to transfer appellate functions from the Central Government to an independent body, SAT. The Amendment Act freezed section 22 of the SCRA and inserted a new section 22A to provide for right of appeal before SAT against refusal, omission or failure by a stock exchange to list the securities of any public company within 15 days of such refusal, omission or failure. An obligation was cast on SAT to dispose off appeals as expeditiously as possible, and to endeavour to dispose of finally within six months. Section 23 was amended to provide penalty for failure to comply with orders of SAT. Similar amendments were effected in the SEBI Act, 1992 and the Depositories Act 1996. Section 15K of the SEBI Act was amended to expand jurisdiction of SAT to deal with appeals also under any other law. Section 15T was amended to empower SAT to deal with appeals from any person aggrieved by an order of SEBI as well as of an adjudicating officer under the SEBI Act. Section 20 of the SEBI Act, which provided for appeals to Central Government, was freezed. Section 23 of the Depositories Act, 1996, which provided for appeals to the Central Government, was also freezed. A new section 23A was inserted to provide for appeals to SAT under the Act. Hence, all appeals, namely the appeals against the orders of SEBI under the SEBI Act and the Depositories Act, appeals against the orders of the adjudicating officers under the SEBI Act, and appeals against refusal of stock exchanges to list securities were allowed to be preferred to SAT. It was further provided that any person aggrieved by the order of SAT may prefer appeal to High Court within 60 days. Provisions were made in all three Acts to provide for appearance of the appellant in person or through one or more chartered accountants or company secretaries or cost accountants or legal practitioners or any of its officers before a SAT. Central government was empowered to make rules to provide for the form in which an appeal may be filed before the SAT and the fees payable in respect of such appeals. Consequently, the SEBI (Appeal to the Central Government) Rules, 1993 and the Depositories (Appeal to the Central Government) Rules, 1998 were repealed. Government notified on 18th February 2000 three Appeal Rules, Viz. (a) Securities Appellate Tribunal (Procedure) Rules, 2000 under the SEBI Act, 1992, (b) The Depositories (Appeal to Securities Appellate Tribunal) Rules, 2000 under the Depositories Act, 1996, and (c) The Securities Contracts (Regulation) (Appeal to Securities Appellate Tribunal) Rules, 2000 under the SCRA. These rules provide for fees, form and procedure for filing appeal and the process of their disposal by the SAT. The appeals (except appeals against adjudication orders under the SEBI Act) under all three Acts need to be accompanied by a fee of Rs. 5,000/- only. The appeals against the adjudication orders need to be accompanied
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by a fee of Rs. 500/- if the penalty imposed is less than Rs.10,000/-, Rs.1,200/- if the penalty imposed is Rs. 10,000/- or more but less than Rs. 1,00,000/- and an additional Rs. 1,000/- for every additional one lakh of penalty or fraction thereof.
H. SEBI (Amendment) Act, 2002

While responding to a calling attention motion in early March, 2001 by the leader of the opposition on extreme volatility in the stock markets, Finance Minister had proposed legislative changes to further strengthen the provisions in the SEBI Act, 1992 to ensure investor protection. In pursuance to this, the SEBI (Amendment) Act, 2002 was enacted to make provisions to (i) strengthen the Securities Appellate Tribunal (SAT) and the SEBI in terms of organisational structure and institutional capacity, (ii) enhance powers of SEBI substantially, particularly in respect of inspection, investigation and enforcement, and (iii) strengthen penal framework by prescribing a few more offences in the SEBI Act and enhancing the monetary penalties for various offences. Strengthening Organisations : Before the Amendment Act, 2002, SEBI consisted of a Chairman and five other members to be appointed by the Central Government. Of the five members, three represented Ministry of Finance, Ministry of Law and the RBI. In view of the growing importance of the securities markets in the economy and the responsibilities of the SEBI under the SEBI Act, it was necessary to strengthen it further. The Amendment Act strengthened it by increasing the number of members from five to eight, providing for at least three whole time members and substituting the representation of the Ministry of Law by the Ministry dealing with administration of the Companies Act, 1956. SEBI would now benefit from the expertise of three additional members, full time attention of at least three additional members, and the representative of the Department of Company Affairs whose operations have bearing on the working of the securities market. The SEBI Act provides for establishment of one or more SATs to hear appeals against the orders of SEBI. Prior to this amendment, the SAT consisted of one person called the Presiding Officer. Since it hears appeals against the orders of SEBI which is a very high powered statutory body and which is strengthened further by this amendment, and in the interests of objectivity and potential work load, it was necessary to strengthen the SAT. The Amendment Act converted the SAT to a three member body consisting of a presiding officer and two other members to be appointed by the Central Government. It enhanced the level of the SAT by prescribing higher eligibility criteria for appointment of the presiding officer and the members. It provided that only a sitting or retired judge of the Supreme Court or a sitting or retired Chief Justice of a High Court would be eligible to be appointed as presiding officer of the SAT and such appointment shall be made in consultation with the Chief Justice of India or his nominee. The presiding officer will hold the office for a term of five years or until he attains the age of sixty eight years, whichever is earlier. It further provided that a person shall be qualified for appointment as member of the SAT if he is a person of ability, integrity and standing, who has shown capacity in dealing with problems relating to securities market and has qualification and experience of corporate law, securities laws, finance, economics or accountancy. A member of SAT can hold office for a term of five years or until he attains the age of sixty two years, whichever is earlier. A member of SEBI or a senior officer of SEBI at the level Executive Director shall not be eligible to be appointed as a member or Presiding Officer of the SAT during the tenure of his office with the SEBI or within two years from the date on which
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he ceases to hold such office. This will avoid conflict of interest in the sense that an official of SEBI responsible for a particular order should not uphold the order as a member of the SAT. Any person aggrieved by any decision or order of the SAT can prefer an appeal before the Supreme Court (it was High Court earlier) only on a question of law. Empowering SEBI : The Amendment Act conferred on SEBI a lot of additional powers to deal with any kind of market misconduct and protect the investors in securities. For example, it can now prevent issue of any offer document if it has any misgivings about the antecedents of promoters / companies concerned. Under the amended provisions, SEBI can now: (i) call for information and record from any bank or any other authority or board or corporation established or constituted by or under any Central, State or Provincial Act in respect of transactions in securities which are under investigation or enquiry by SEBI; (ii) conduct inspection of any book or register or other document or record of any listed public company; If, however, the said company is not a registered intermediary, SEBI can inspect only if it has reasonable grounds to believe that such company has been indulging in insider trading or fraudulent and unfair trade practices relating to securities market. (iii) issue commissions for examination of witnesses or documents while exercising powers to call for information or conduct inspection; (iv) take any of the following measures in the interest of investors or securities market, either pending investigation or inquiry or on completion of such investigation or inquiry, but after giving an opportunity of hearing (a) suspend trading of a security in a recognised stock exchange; (b) restrain persons from accessing the securities market and prohibit any person associated with securities market from buying, selling or dealing in securities; (c) suspend any office bearer of a stock exchange or self-regulatory organisation from holding such position; (d) impound and retain the proceeds or securities in respect of any transaction which is under investigation; (e) attach for a period not exceeding one month, with the prior approval of a magistrate, one or more bank accounts of any intermediary or any person associated with the securities market in any manner involved in violation of any of the provisions of the Act or rules or regulations made thereunder; and (f) direct any intermediary or any person associated with the securities market in any manner not to dispose of or alienate an asset forming part of any transaction which is under investigation. In case of a listed public company, which is not a registered intermediary, the SEBI can exercise its powers of impounding and retaining proceeds or securities, attaching bank accounts or directing non-alienation of assets only if it has reasonable grounds to believe that the company has been indulging in insider trading or fraudulent and unfair trade practices relating to securities market. (v) prohibit, for the protection of investors, any company from issuing any offer
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SUPPLEMENT FOR SECURITIES LAWS & REGULATION OF FINANCIAL MARKETS document including a prospectus or advertisement soliciting money from the public for the issue of securities, and specify the conditions subject to which such offer documents can be issued; (vi) specify the requirements for listing and transfer of securities; and (vii) pass an order requiring a person to cease and desist from committing or causing a particular violation of any of the provisions of the SEBI Act, or any rules or regulations made thereunder, if it finds, after an enquiry, that such person has violated or likely to violate the said provisions. In case of a listed public company, which is not a registered intermediary, the SEBI can exercise this powers only if it has reasonable grounds to believe that the company has been indulging in insider trading or market manipulation.
In addition, SEBI was armed with powers of investigation. If SEBI has reasonable grounds to believe that the transactions in securities are being dealt in a manner detrimental to the investors or the securities market or any intermediary or any person associated with the securities market has violated any of the provisions of the SEBI Act or the rules or the regulations made or directions issued by SEBI thereunder, it can appoint a person as investigating authority to investigate the affairs of such intermediary or persons associated with the securities market. In order to provide required teeth to the investigating authority, it has been provided that any person failing to produce any document or information to the investigating authority or appear before the investigating authority or sign the notes of examination shall be punishable with imprisonment or with fine or with both. Further, if the investigating authority has reasonable grounds to believe that the books, registers or documents or records of or relating to any intermediary or any person associated with securities market in any manner, may be destroyed, mutilated, altered or falsified or secreted, he can obtain an authorisation from a Magistrate to (a) enter the place or places where such books or records are kept, (b) search the place or places and (c) seize the books or records, as considered necessary for investigation. Such authorisation would not be available to investigating authority in case of books or documents of any listed public company, which is not a registered intermediary, unless such company indulges in insider trading or market manipulation. Such search and seizure shall be carried out in accordance with the provisions of the Code of Criminal Procedure, 1973. The investigating authority can keep such record and documents in his custody till the conclusion of the investigation. Strengthening Penal Framework : Section 11 of the SEBI Act, 1992 enjoins upon SEBI to take measures to provide for prohibiting insider trading in securities and fraudulent and unfair trade practices relating to securities markets, regulating substantial acquisition of shares and takeover of companies etc. However, these terms were not explained and these activities were not expressly forbidden in the Act. In order to clarify the matter, the Amendment Act added a new chapter, Chapter VA, relating to prohibition of manipulative and deceptive devices, insider trading and substantial acquisition of securities or control and empowered SEBI to regulate these practices by regulations. It now provides that it shall be unlawful for any person, directly or indirectly (a) to use or employ any manipulative or deceptive device or contrivance in contravention of regulations in connection with the issue, purchase or sale of any securities listed or proposed to be listed;
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(b) to employ any device, scheme or artifice to defraud in connection with issue or dealing in securities which are listed or proposed to be listed; (c) to engage in any act, practice, course of business which operates or would operate as a fraud or deceit upon any person, in connection with the issue, dealing in securities which are listed or proposed to be listed, in contravention of the provisions of the Act, or the rules or the regulations made thereunder; (d) to engage in insider trading; (e) to deal in securities while in possession of material or non-public information or communicate such material or non-public information to any other person, in a manner which is in contravention of the provisions of the Act, or the rules or the regulations made thereunder; and (f) to acquire control or securities beyond threshold limit of a company, whose securities are listed or proposed to be listed, in contravention of the regulations made under the SEBI Act. In order to equip SEBI with wherewithal to bring all types of culprits to book to ensure orderly development of market, the Amendment Act prescribed a few more offences along with associated penalties and enhanced penalties for the offences committed under the Act from a maximum of Rs. 5 lakh to a maximum of Rs. 25 crore or three times the amount of profit made out of violation, whichever is higher, and from imprisonment of one year to 10 years. Such enhanced punishment should serve as enough deterrent for the potential violators of law. All the violations under section 15 shall be adjudicated by an adjudicating officer appointed by SEBI. The Amendment Act, however, provides that all sums realised by way of penalties would be credited to Consolidated Fund of India instead of SEBI. This is probably to avoid conflict of interest that SEBI may impose higher penalty when it needs more funds. The Amendment Act empowered the SAT and the Courts to compound offences. They can compound any offence under the SEBI Act, not being an offence punishable with imprisonment only, or with imprisonment and also with fine, either before or after the institution of the proceeding. In order to reduce delays, avoid unnecessary litigation and get cooperation of the accused, Central Government has been empowered to grant immunity, before institution of prosecution, to any person from prosecution for any offence under the SEBI Act or rules or regulations made thereunder or from the imposition of any penalty under the Act with respect to alleged violation. Such immunity can be granted only if SEBI recommends it and the person makes a full and true disclosure in respect of the alleged violation. If any person to whom immunity has been granted does not comply with the conditions on which immunity was granted or had given false evidence, the immunity can be withdrawn and on such withdrawal, the accused would face normal prosecution / penalty. Any offence punishable under the Act or any rules or regulations made thereunder shall be tried by a court of session instead of a metropolitan magistrate or a judicial magistrate of the first class as provided earlier.
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SUPPLEMENT FOR SECURITIES LAWS & REGULATION OF FINANCIAL MARKETS Scheme of Penalties under the SEBI (Amendment) Act, 2002
Section
Violations Before Amendment
Penalty After Amendment
11C(6)
Failure to produce books, records, etc. or furnish information or appear before the investigating authority or to sign the note of any examination by investigating authority
New provision
15A(a)
Failure by any person to furnish any document, return or report to SEBI required under the Act or any rules or regulations made there under Failure by any person to file any return or furnish any information, books or other documents within the time specified in the regulations Failure by any person to maintain books of accounts or records required under the Act or any rules or regulations made thereunder. Failure by an intermediary to enter into agreement with clients required under the Act
Not exceeding Rs.1.5 lakh / Failure
Imprisonment for a term which may extend to one year or fine which may extend to Rs. 1 crore or both and a further fine which may extend to Rs.5 lakh for every day after the first during which the failure or refusal continues Rs. 1 lakh for each day during which such failure continues or Rs. 1 crore, whichever is less
15A(b)
Not exceeding Rs. 5,000 for each day during which such failure continues Not exceeding Rs. 10,000 for each day during which such failure continues Not exceeding Rs. 5 lakh / Failure
15A(c)
15B
15C
Failure by an intermediary to redress Not exceeding the grievances of investors after Rs. 10,000 / Failure having been called upon by SEBI to do so Failure by a listed company to New provision redress the grievances of investors after having been called upon by SEBI to do so Sponsoring or carrying on any CIS, including mutual funds, by any person, without obtaining a certificate of registration from SEBI Not exceeding Rs. 10,000 for each day during which he carries on any such CIS or Rs. 10 lakh, whichever is higher Rs. 1 l akh for each day during which he sponsors or carries on any such CIS or Rs. 1 crore, whichever is less
15C
15D(a)
15D(b)
Failure by a registered CIS to comply Not exceeding with terms and conditions of Rs. 10,000 for each registration day during which such failure continues or Rs. 10 lakh, whichever is higher Failure by a registered CIS to apply for listing of its schemes as provided in the regulations Not exceeding Rs. 5,000 for each day during which such failure continues or Rs. 5 lakh, which-
15D(c)

Section Violations Before Amendment
ever is higher 15D(d) Failure by a registered CIS to despatch unit certificates in the manner provided in the regulations Failure by a registered CIS to refund application monies within the period specified in the regulations Failure by a registered CIS to invest money in the manner or within the period specified in the regulations Failure by any asset management company of a registered mutual fund to observe rules and regulations Failure by a registered stock broker to issue contract notes in the manner specified by the exchange Not exceeding Rs. 1,000 for each day during which such failure continues Not exceeding Rs. 1,000 for each day during which such failure continues Not exceeding Rs. 5 lakh / Failure Not exceeding Rs. 5 lakh / Failure
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After Amendment
Penalty
15D(e)
15D(f)
15E
15F(a)
Not exceeding five times the amount for which the contract note was required to be issued Not exceeding Rs. 5,000 for each day during which such failure continues Not exceeding Rs. 5,000 or five times the amount of brokerage charged in excess of the specified brokerage, whichever is higher Not exceeding Rs. 5 lakh
No change
15F(b)
Failure by a registered stock broker to deliver any security or make payment of the amount due to investor in th e manner specified in the regulations Charging brokerage in excess of the amount specified in the regulations by a registered stock broker
Rs. 1 lakh for each day during which such failure continues or Rs. 1 crore, whichever is less Rs. 1 lakh or five times the amount of brokerage charged in excess of the specified brokerage, whichever is higher
15F(c)
15G
Insider trading
Rs. 25 crore or three times the amount of profits made out of insider trading, whichever is higher Rs. 25 crore or three times the amount of profits made out of such failure, whichever is higher
15H
Failure by any person to disclose the aggregate shareholding in the body corporate or make public announcement as required under the Act or rules or regulations Failure by any person to make a public offer or make payment of consideration to shareholders who sold their shares pursuant to the letter of offer, as required under the Act or rules or regulations Indulging in fraudulent and unfair trade practices relating to securities
Not exceeding lakh
Rs. 5
15H
New provision
15HA
New provision
Penalty which may up to Rs. 1 crore
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Section

Violations Before Amendment Penalty After Amendment
15HB
Failure to comply with any provision of the Act, the rules or regulations made or directions issued by SEBI thereunder for which no separate penalty has been provided Contravenes or attempts to contravene or abets the contravention of the provisions of the Act or of any rules or regulations made thereunder Failure to pay the penalty imposed by adjudicating officer or to comply with any of his directions or order.
New provision
24(1)
Imprisonment for a term which may extend to one year, or fine, or both Imprisonment for a term which shall not be less than one month but which may extend to 3 years, or fine which shall not be less than Rs. 2,000 but which may extend to Rs. 10,000, or both
Imprisonment for a term which may extend to ten years, or fine which may extend to Rs. 25 crore, or both Imprisonment for a term which shall not be less than one month but which may extend to 10 years, or fine which shall not be less than Rs. 25 crore or both
24(2)
CAPITAL MARKET FREQUENTLY ASKED QUESTIONS

What are the various types of financial markets? The financial markets can broadly be divided into money and capital market.
Money Market : Money market is a market for debt securities that pay off in the short term usually less than one year, for example the market for 90-days treasury bills. This market encompasses the trading and issuance of short term non equity debt instruments including treasury bills, commercial papers, bankers acceptance, certificates of deposits, etc. Capital Market : Capital market is a market for long-term debt and equity shares. In this market, the capital funds comprising of both equity and debt are issued and traded. This also includes private placement sources of debt and equity as well as organized markets like stock exchanges. Capital market can be further divided into primary and secondary markets.
What is meant by the secondary market ? Secondary market refers to a market where securities are traded after being initially offered to the public in the primary market and/or listed on the Stock Exchange. Majority of the trading is done in the secondary market. Secondary market comprises of equity markets and the debt markets. For the general investor, the secondary market provides an efficient platform for trading of his securities. For the management of the company, Secondary equity markets serve as a monitoring and control conduitby facilitating value-enhancing control activities, enabling implementation of incentive-based management contracts, and aggregating information (via price discovery) that guides management decisions. What is the difference between the primary market and the secondary market ? In the primary market, securities are offered to public for subscription for the purpose of raising capital or fund. Secondary market is an equity trading venue in which already existing/pre- issued securities are traded among investors. Secondary market could be either auction or dealer market. While stock exchange is the part of an auction market, Over-the-Counter (OTC) is a part of the dealer market.
Selected FAQs reproduced from the website of SEBI (www.sebi.gov.in). These FAQs are not the interpretation of the law and provide only a simplisitic explanation of terms/concepts related to Secondary markets. Users are advised to obtain expert/legal opinion as SEBI does not own any responsibility in this regard.
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What is the SEBI and what is its role ? The SEBI is the regulatory authority in India established under Section 3 of SEBI Act to protect the interests of the investors in securities and to promote the development of, and to regulate, the securities market and for matters connected therewith and incidental thereto. What are the products dealt in the secondary markets ? Following are the main financial products/instruments dealt in the Secondary market:
Equity : The ownership interest in a company of holders of its common and preferred stock. The various kinds of equity shares are as follows
Equity Shares : An equity share, commonly referred to as ordinary share also represents the form of fractional ownership in which a shareholder, as a fractional owner, undertakes the maximum entrepreneurial risk associated with a business venture. The holder of such shares are member of the company and have voting rights. A company may issue such shares with differential rights as to voting, payment of dividend etc. Rights Issue/ Rights Shares : The issue of new securities to existing shareholders at a ratio to those already held. Bonus Shares: Shares issued by the companies to their shareholders free of cost by capitalization of accumulated reserves from the profits earned in the earlier years. Preferred Stock/ Preference shares : Owners of this kind of shares are entitled to a fixed dividend or dividend calculated at a fixed rate to be paid regularly before dividend can be paid in respect of equity share. They also enjoy priority over the equity shareholders in payment of surplus. But in the event of liquidation, their claims rank below the claims of the companys creditors, bondholders / debenture holders. Cumulative Preference Shares : A type of preference shares on which dividend accumulates if remains unpaid. All arrears of preference dividend have to be paid out before paying dividend on equity shares. Cumulative Convertible Preference Shares : A type of preference shares where the dividend payable on the same accumulates, if not paid. After a specified date, these shares will be converted into equity capital of the company. Participating Preference Share : The right of certain preference shareholders to participate in profits after a specified fixed dividend contracted for is paid. Participation right is linked with the quantum of dividend paid on the equity shares over and above a particular specified level. Bond : A negotiable certificate evidencing indebtedness. It is normally unsecured. A debt security is generally issued by a company, municipality or government agency. A bond investor lends money to the issuer and in exchange, the issuer promises to repay the loan amount on a specified maturity date. The issuer usually pays the bond holder periodic interest payments over the life of the loan.
SUPPLEMENT FOR SECURITIES LAWS & REGULATION OF FINANCIAL MARKETS The various types of Bonds are as follows
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Zero Coupon Bond : Bond issued at a discount and repaid at a face value. No periodic interest is paid. The difference between the issue price and redemption price represents the return to the holder. The buyer of these bonds receives only one payment, at the maturity of the bond. Convertible Bond : A bond giving the investor the option to convert the bond into equity at a fixed conversion price. Debentures : Bonds issued by a company bearing a fixed rate of interest usually payable half yearly on specific dates and principal amount repayable on particular date on redemption of the debentures. Debentures are normally secured/charged against the asset of the company in favor of debenture holder. Commercial Paper : A short term promise to repay a fixed amount that is placed on the market either directly or through a specialized intermediary. It is usually issued by companies with a high credit standing in form of a promissory note redeemable at par to the holder on maturity and therefore doesnt require any guarantee. Commercial paper is a money market instrument issued for the tenure of 90 days. Coupons : Tokens for payment of interest attached to bearer securities. Treasury Bills : Short-term (up to one year) bearer discount security issued by government as a means of financing their cash requirements. Whom should I contact for my Stock Market related transactions ? You can contact a broker or a sub broker registered with SEBI for carrying out your transactions pertaining to the capital market. Who is a broker ? A broker is a member of a recognized stock exchange, who is permitted to do trades on the floor of the exchange. He is enrolled as a member with the concerned exchange and is registered with SEBI. Who is a sub broker ? A sub broker is a person who is registered with SEBI as such and is affiliated to a member of a recognized stock exchange. How do I know if the broker or sub broker is registered ? You can confirm it by verifying the registration certificate issued by SEBI. A brokers registration number begins with the letters INB and that of a sub broker with the letters INS. Am I required to sign any agreement with the broker or sub-broker? Yes.You have to sign the Member - Client agreement/ Sub broker - Client Agreement for the purpose of engaging a broker to execute trades on your behalf from time to time and furnish details relating to yourself for enabling the member to maintain client registration form. The Model Agreement between broker-client /Sub Broker client and Know your Client Form can be viewed from SEBI Website at www.sebi.gov.in. The Model Agreement
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has to be executed on the non-judicial stamp paper. The Agreement contains clauses defining the rights and responsibility of Client vis a vis broker/ sub broker. The Broker/ Sub broker can also add further clauses in the Model Agreement as per their requirement. What is Member Client agreement form ? This form is an agreement entered between client and broker in presence of witness where the client agrees (is desirous) to trade/invest in the securities listed on the concerned Exchange through the broker after being satisfied of brokers capabilities to deal in securities. The member, on the other hand agrees to be satisfied by the genuineness and financial soundness of the client and making client aware of his(brokers) liability for the business to be conducted. What kind of details do I have to provide in Client Registration form? The brokers have to maintain a database of their clients, for which you have to fill client registration form. In case of individual client registration, you have to broadly provide following information: Your name, address, educational qualifications, occupation, residential status(Resident Indian/ NRI/others)
Particulars of bank account Income tax no (PAN/GIR) which also serves as unique client code. If you are registered with any other broker, then the name of broker and concerned Stock exchange and Client Code Number. Proof of identity submitted either as Passport number/Driving license/Ration card/Voters identity card. Each client has to use one registration form. In case of joint names /family members, a separate form has to be submitted form each person. In case of Corporate Client, following information has to be provided: Name , address of the Company/Firm Date of incorporation and date of commencement of business. Copy of Memorandum and articles of Association/Partnership deed. Details of Promoters/Partners/Key managerial Personnel the Company/Firm in specified format. Copies of annual report of last three years. Net worth of the Company Particulars of the Bank Account. Income tax number of the company. Annual income in last three years and market value of portfolio If you are registered with any other broker, then the name of broker and concerned Stock exchange and Client Code Number.
SUPPLEMENT FOR SECURITIES LAWS & REGULATION OF FINANCIAL MARKETS What is meant by Unique Client Code?
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In order to facilitate maintaining database of their clients, it is mandatory for all brokers to use unique client code which will act as an exclusive identification for the client. For this purpose, PAN number/passport number/driving License/voters ID number/ ration card number coupled with the frequently used bank account number and the depository beneficiary account can be used for identification, in the given order, based on availability. How do I place my orders with the broker or sub broker ? You can either go to the brokers /sub brokers office or place an order on the phone /internet or as defined in the Model Agreement given above. How do I know whether my order is placed ? The Stock Exchanges assign a Unique Order Code Number to each transaction, which is intimated by broker to his client and once the order is executed, this order code number is printed on the contract note. The broker member has to also maintain the record of time when the client has placed order and reflect the same in the contract note along with the time of execution of the order. What documents should be obtained from broker on execution of trade ? You have to ensure receipt of the following documents for any trade executed on the Exchange: (a) Contract note in Form A to be given within stipulated time. (b) Purchase /sale note or confirmation memo in the case of a sub broker. It is the contract note/purchase or sale note (confirmation memo) that gives rise to contractual rights and obligations of parties of the trade. Hence you should insist on contract note from stock broker and purchase/sale note (confirmation memo) from sub broker. The contract note displays the order number, order time and unique trade number. The quantity and the price of the trade executed at the exchange can be verified by the Exchange. The contract note also contains arbitration clause for raising dispute with the Arbitrators as per the byelaws of the Exchange. What details are required to be mentioned on the Contract note issued by the Stock Broker ? A broker has to issue a contract note to clients for all transactions in the form specified by the stock exchange. The contract note inter-alia should have following : Name, address and SEBI Registration number of the Member broker. Name of partner /proprietor /Authorised Signatory. Dealing Office Address/Tel No/Fax no, Code number of the member given by the Exchange. Contract number, date of issue of contract note, settlement number and time period for settlement. Constituent (Client) name/Code Number.
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SUPPLEMENT FOR SECURITIES LAWS & REGULATION OF FINANCIAL MARKETS Order number and order time corresponding to the trades. Trade number and Trade time. Quantity and Kind of Security brought/sold by the client. Brokerage and Purchase /Sale rate are given separately . Service tax rates and any other charges levied by the broker. Appropriate stamps have to be affixed on the original contract note or it is mentioned that the consolidated stamp duty is paid. Signature of the Stock broker/Authorized Signatory.
Incase of purchase and sale note provided by the sub broker, following additional information is provided: Name and SEBI Registration no of Sub broker. Name of affiliating trading member. Purchase/sale note number . Corresponding contract note issued by the broker for relevant trade number along with the date of contract. Both contract note and purchase / sale note provide for the recourse to the system of arbitrators for settlement of disputes arising out of transactions. What is the pay-in day and payout day ? Pay in day is the day when the brokers shall make payment or delivery of securities to the exchange. Pay out day is the day when the exchange makes payment or delivery of securities to the broker. Since settlement cycle has been reduced from T+3 rolling settlement to T+2 w.e.f. April 01, 2003, the exchanges have to ensure that the pay out of funds and securities to the clients is done by the broker within 24 hours of the payout. The Exchanges will have to issue press release immediately after pay out. How long it takes to receive my money for a sale transaction and my shares for a buy transaction ? Brokers were required to make payment or give delivery within two working days of the pay - out day. However, as settlement cycle has been reduced from T+3 rolling settlement to T+2 w.e.f. April 01, 2003, the pay out of funds and securities to the clients by the broker will be within 24 hours of the payout. Is there any provision where I can get faster delivery of shares in my account ? The investors/clients can get direct delivery of shares in their beneficiary accounts. To avail this facility, you have to give details of your beneficiary account and the DP-ID of your DP to your broker along with the Standing Instructions for Delivery-In to your Depository participant for accepting shares in your beneficiary account. Given these details, the Clearing Corporation/Clearing House shall send pay out instructions to the depositories so that you receive pay out of securities directly into the beneficiary account. In case of purchase of shares, when do I make payment to the broker ? The payment for the shares purchased is required to be done prior to the pay in date
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for the relevant settlement or as otherwise provided in the Rules and Regulations of the Exchange. In case of sale of shares, when should the shares be given to the broker ? The delivery of shares has to be done prior to the pay in date for the relevant settlement or as otherwise provided in the Rules and Regulations of the Exchange and agreed with the broker/sub broker in writing. What is the maximum brokerage that a broker/sub broker can charge ? The maximum brokerage that can be charged by a broker is decided by the Stock Exchanges as per the Exchange Regulations. The SEBI (Stock brokers and Sub brokers), 1992 stipulates that sub broker cannot charge from his clients a commission which is more than 1.5% of the value mentioned in the respective purchase or sale note . What are the charges that can be levied on the investor by a stock broker/sub Broker ? The trading member can charge: 1. Brokerage charged by member broker. 2. 3. Penalties arising on specific default on behalf of client (investor) Service tax as stipulated
The brokerage and service tax is indicated separately in the contract note. What happens if I could not make the payment of money or deliver shares on the pay-in day ? In case of purchase on your behalf, the member broker has the liberty to close out transactions by selling securities in case you fail to make full payment to the broker for the execution of contract before pay in day as fixed by Stock Exchange for the concerned settlement period unless you already have an equivalent credit with the Broker. Similarly, in case of sale of shares on your behalf, the member broker has the liberty to close out the contract by effecting purchases if you fail to deliver the securities sold with valid transfer documents, if any before delivery day as fixed by Stock Exchange for the concerned settlement period. In both the cases, any loss in transactions will be deductible from the margin money paid by you. The shortages are met through auction process and the difference in price indicated in contract note and price received through auction is paid by member to the Exchange, which is then liable to be recovered from the client. What happens if the shares are not bought in the auction ? If the shares could not be bought in the auction i.e. if shares are not offered for sale in the auction, the transactions are closed out as per SEBI guidelines. The guidelines stipulate that the close out Price will be the highest price recorded in that scrip on the exchange in the settlement in which the concerned contract was entered into and upto the date of auction/close out OR 20% above the official closing price on the exchange on the day on which auction offers are called for (and in the event of there being no such
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closing price on that day, then the official closing price on the immediately preceding trading day on which there was an official closing price), whichever is higher. Since in the rolling settlement the auction and the close out takes place during trading hours, hence the reference price in the rolling settlement for close out procedures would be taken as the previous days closing price. What happens if I do not get my money or share on the due date ? In case a broker fails to deliver to you in timely and proper payment of money/ shares or you have complaint against conduct of the stock broker, you can file a complaint with the respective stock exchange. The exchange is required to resolve all the complaints. To resolve the dispute, the complainant can also resort arbitration as provided on the reverse of contract note /purchase or sale note. However, if the complaint is not addressed by the Stock Exchanges or is unduly delayed, then the complaints along with supporting documents may be forwarded to Secondary Market Department of SEBI. Your complaint would be followed up with the exchanges for expeditious redressal. In case of complaint against a sub broker, the complaint may be forwarded to the concerned broker with whom the sub broker is affiliated for redressal. What recourses are available to me for redressing my grievances ? You have following recourses available.
Investor Grievance Redressal Cell (IGG) : You can lodge complaint with IGG Cell of SEBI against companies for delay, non-receipt of shares, refund orders etc and with Stock Exchanges against brokers on certain trade disputes or non receipt of payment/ securities. Arbitration : If no amicable settlement could be reached, then you can make application for reference to Arbitration under the Bye Laws of concerned Stock exchange. Court of Law
What is Arbitration ? Arbitration is an alternative dispute resolution mechanism provided by a stock exchange for resolving disputes between the trading members and their clients in respect of trades done on the exchange. What is the process for preferring arbitration ? The byelaws of the exchange provide procedure for Arbitration .You can procure a form for filing arbitration from the concerned stock exchange. The arbitral tribunal has to make the arbitral award within 3 months from the date of entering upon the reference. The time taken to make an award cannot be extended beyond three times up to maximum period of three months. Who appoints the arbitrators ? Every exchange maintains a panel of arbitrators. Investors may choose the arbitrator of their choice from the panel. The broker also has an option to choose an arbitrator. The name(s) would be forwarded to the member for acceptance. In case of disagreement, the exchange shall decide upon the name of arbitrators.
SUPPLEMENT FOR SECURITIES LAWS & REGULATION OF FINANCIAL MARKETS What happens if I am aggrieved by the award of the arbitrator ?
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In case you are aggrieved by the arbitration award, you can take recourse to the appeal provisions as given in the bye-laws of the Exchange. OTHER GENERAL QUESTIONS What is the traditional structure of the stock exchanges in India ? In terms of legal structure, the stock exchanges in India could be segregated into two broad groups 20 stock exchanges which were set up as companies, either limited by guarantees or by shares, and the 3 stock exchanges which are functioning as associations of persons (AOP) viz. BSE, ASE and Madhya Pradesh Stock Exchange. The 20 stock exchanges which are companies are: the stock exchanges of Bangalore, Bhubaneswar, Calcutta, Cochin, Coimbatore, Delhi, Gauhati, Hyderabad, Interconnected SE, Jaipur, Ludhiana, Madras, Magadh, Managalore, NSE, Pune, OTCEI, SaurashtraKutch, Uttar Pradesh, and Vadodara. Apart from NSE, all stock exchanges whether established as corporate bodies or Association of Persons (AOPs), are non-profit making organizations. What is meant by corporatisation of stock exchanges ? Corporatisation is the process of converting the organizational structure of the stock exchange from a non-corporate structure to a corporate structure. Traditionally, some of the stock exchanges in India were established as Association of persons, e.g. BSE, ASE and MPSE. Corporatisation of such exchanges is the process of converting them into incorporated Companies. What is demutualisation of stock exchanges ? Demutualisation refers to the transition process of an exchange from a mutuallyowned association to a company owned by shareholders. In other words, transforming the legal structure of an exchange from a mutual form to a business corporation form is referred to as demutualisation. The above, in effect means that after demutualisation, the ownership, the management and the trading rights at the exchange are segregated from one another. How is a demutualised exchange different from a mutual exchange ? In a mutual exchange, the three functions of ownership, management and trading are intervened into a single Group. Here, the broker members of the exchange are both the owners and the traders on the exchange and they further manage the exchange as well. A demutualised exchange, on the other hand, has all these three functions clearly segregated, i.e. the ownership, management and trading are in separate hands. What is meant by delisting of securities ? The term delisting of securities means permanent removal of securities of a listed company from a stock exchange. As a consequence of delisting, the securities of that company would no longer be traded at that stock exchange. What is the difference between Voluntary delisting and Compulsory delisting? Compulsory delisting refers to permanent removal of securities of a listed company from a stock exchange as a penalizing measure at the behest of the Stock exchange for
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not making submissions/comply with various requirements set out in the Listing agreement within the time frames prescribed. In voluntary delisting, a listed company decides on its own to permanently remove its securities from a stock exchange. What is the exit opportunity available for investors in case a company gets delisted? SEBI (Delisting of Securities) Guidelines, 2003 provide an exit mechanism, whereby the exit price for voluntary delisting of securities is determined by the promoter of the concerned company which desires to get delisted, in accordance to book building process. The offer price has a floor price ,which is average of 26 weeks average of traded price quoted on the stock exchange where the shares of the company are most frequently traded preceding 26 weeks from the date public announcement is made. There is no ceiling on the maximum price. In case of infrequently traded securities, the offer price is as per Regulation20 (5) of SEBI (Substantial Acquisition and Takeover) Regulations. For this purpose, infrequently traded securities is determined in the manner as provided in Regulation20 (5) of SEBI (Substantial Acquisition and Takeover) Regulations. Does a company listed at BSE/NSE have to provide exit offer to shareholders in case it delists from stock exchanges other than BSE and NSE ? No, the company does not have to provide exit offer to shareholders because it continues to be listed on the BSE /NSE which have nationwide reach and shareholders can exit any time they decide to so by way of selling shares in NSE/BSE. What is a Central Listing Authority? The Central Listing Authority (CLA) is set up to address the issue of multiple listing of the same security and to bring about uniformity in the due diligence exercise in scrutinizing all listing applications on any stock exchanges. The functions of CLA as enumerated in SEBI (Central Listing Authority) Regulations, 2003 include: processing the application made by any body corporate, mutual fund or collective investment scheme for the letter of recommendation to get listed at the stock exchange, making recommendations as to listing conditions, and any other functions that may be specified by the SEBI Board from time to time. What are the established codes of corporate governance ? The Codes may be divided into supranational, national or institutional codes, depending on author. Some of the selected examples of supranational Codes are: OECD, ICGN (International Corporate Governance Network), CACG (Commonwealth Association for Corporate Governance); selected examples of national Codes are: Vinot Report from France, the Cadbury, Greenbury and Hampel Reports and the Combined Code from the UK, the Malaysian code; and selected institutional Codes are: Calpers, Hermes Investment Management, the CII code on desirable corporate governance. SEBI has also laid down certain codes like Kumar Mangalam Birla Committee Report, Clause 49 of Listing Agreement for good governance of listed companies with the purpose of enhancing wealth creation, wealth management and distribution.
SUPPLEMENT FOR SECURITIES LAWS & REGULATION OF FINANCIAL MARKETS What is meant by Corporate Governance ?
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As Kumar Managalam Committee Report on Corporate Governance enumerates, the fundamental objective of corporate governance is the enhancement of shareholder value, keeping in view the interests of other stakeholder. This definition harmonizes the need for a company to strike a balance at all times between the need to enhance shareholders wealth whilst not in any way being detrimental to the interests of the other stakeholders in the company. What is meant by independent directors ? As per Clause 49 of the listing agreement, Independent directors means directors who apart from receiving directors remuneration, do not have any other material pecuniary relationship or transactions with the company, its promoters, its management or its subsidiaries, which in judgment of the Board may affect independence of judgment of the director What is EDIFAR ? Electronic Data Information Filing and Retrieval System (EDIFAR) is a website launched by SEBI in association with National Informatics Center (NIC) in July 2002 to facilitate filing of certain material information/ documents/statements by the listed companies on line in the EDIFAR web site - www.sebiedifar.nic.in .EDIFAR would enable electronic filing of information in a standard format by the companies and expedite dissemination of information to various classes of market participants like investors, regulatory organization, research institutions, etc.
MUTUAL FUNDS FREQUENTLY ASKED QUESTIONS*

What is a Mutual Fund ? Mutual fund is a mechanism for pooling the resources by issuing units to the investors and investing funds in securities in accordance with objectives as disclosed in offer document. Investments in securities are spread across a wide cross-section of industries and sectors and thus the risk is reduced. Diversification reduces the risk because all stocks may not move in the same direction in the same proportion at the same time. Mutual fund issues units to the investors in accordance with quantum of money invested by them. Investors of mutual funds are known as unitholders. The profits or losses are shared by the investors in proportion to their investments. The mutual funds normally come out with a number of schemes with different investment objectives which are launched from time to time. A mutual fund is required to be registered with Securities and Exchange Board of India (SEBI) which regulates securities markets before it can collect funds from the public. What is the history of Mutual Funds in India and role of SEBI in mutual funds industry ? Unit Trust of India was the first mutual fund set up in India in the year 1963. In early 1990s, Government allowed public sector banks and institutions to set up mutual funds. In the year 1992, Securities and exchange Board of India (SEBI) Act was passed. The objectives of SEBI are to protect the interest of investors in securities and to promote the development of and to regulate the securities market. As far as mutual funds are concerned, SEBI formulates policies and regulates the mutual funds to protect the interest of the investors. SEBI notified regulations for the mutual funds in 1993. Thereafter, mutual funds sponsored by private sector entities were allowed to enter the capital market. The regulations were fully revised in 1996 and have been amended thereafter from time to time. SEBI has also issued guidelines to the mutual funds from time to time to protect the interests of investors. All mutual funds whether promoted by public sector or private sector entities including those promoted by foreign entities are governed by the same set of Regulations. There is no distinction in regulatory requirements for these mutual funds and all are subject to monitoring and inspections by SEBI. The risks associated with the schemes launched by the mutual funds sponsored by these entities are of similar type.
Reproduced from the website of SEBI (www.sebi.gov.in)
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SUPPLEMENT FOR SECURITIES LAWS & REGULATION OF FINANCIAL MARKETS How is a mutual fund set up ?
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A mutual fund is set up in the form of a trust, which has sponsor, trustees, asset management company (AMC) and custodian. The trust is established by a sponsor or more than one sponsor who is like promoter of a company. The trustees of the mutual fund hold its property for the benefit of the unitholders. Asset Management Company (AMC) approved by SEBI manages the funds by making investments in various types of securities. Custodian, who is registered with SEBI, holds the securities of various schemes of the fund in its custody. The trustees are vested with the general power of superintendence and direction over AMC. They monitor the performance and compliance of SEBI Regulations by the mutual fund. SEBI Regulations require that at least two thirds of the directors of trustee company or board of trustees must be independent i.e. they should not be associated with the sponsors. Also, 50% of the directors of AMC must be independent. All mutual funds are required to be registered with SEBI before they launch any scheme. What is Net Asset Value (NAV) of a scheme ? The performance of a particular scheme of a mutual fund is denoted by Net Asset Value (NAV). Mutual funds invest the money collected from the investors in securities markets. In simple words, Net Asset Value is the market value of the securities held by the scheme. Since market value of securities changes every day, NAV of a scheme also varies on day to day basis. The NAV per unit is the market value of securities of a scheme divided by the total number of units of the scheme on any particular date. For example, if the market value of securities of a mutual fund scheme is Rs 200 lakhs and the mutual fund has issued 10 lakhs units of Rs. 10 each to the investors, then the NAV per unit of the fund is Rs.20. NAV is required to be disclosed by the mutual funds on a regular basis daily or weekly - depending on the type of scheme. What are the different types of mutual fund schemes ?
Schemes according to Maturity Period

A mutual fund scheme can be classified into open-ended scheme or close-ended scheme depending on its maturity period.
Open-ended Fund/ Scheme

An open-ended fund or scheme is one that is available for subscription and repurchase on a continuous basis. These schemes do not have a fixed maturity period. Investors can conveniently buy and sell units at Net Asset Value (NAV) related prices which are declared on a daily basis. The key feature of open-end schemes is liquidity.
Close-ended Fund/ Scheme

A close-ended fund or scheme has a stipulated maturity period e.g. 5-7 years. The fund is open for subscription only during a specified period at the time of launch of the scheme. Investors can invest in the scheme at the time of the initial public issue and thereafter they can buy or sell the units of the scheme on the stock exchanges where the units are listed. In order to provide an exit route to the investors, some close-ended
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funds give an option of selling back the units to the mutual fund through periodic repurchase at NAV related prices. SEBI Regulations stipulate that at least one of the two exit routes is provided to the investor i.e. either repurchase facility or through listing on stock exchanges. These mutual funds schemes disclose NAV generally on weekly basis.
Schemes according to Investment Objective

A scheme can also be classified as growth scheme, income scheme, or balanced scheme considering its investment objective. Such schemes may be open-ended or close-ended schemes as described earlier. Such schemes may be classified mainly as follows:
Growth / Equity Oriented Scheme

The aim of growth funds is to provide capital appreciation over the medium to longterm. Such schemes normally invest a major part of their corpus in equities. Such funds have comparatively high risks. These schemes provide different options to the investors like dividend option, capital appreciation, etc. and the investors may choose an option depending on their preferences. The investors must indicate the option in the application form. The mutual funds also allow the investors to change the options at a later date. Growth schemes are good for investors having a long-term outlook seeking appreciation over a period of time.
Income/Debt Oriented Scheme

The aim of income funds is to provide regular and steady income to investors. Such schemes generally invest in fixed income securities such as bonds, corporate debentures, Government securities and money market instruments. Such funds are less risky compared to equity schemes. These funds are not affected because of fluctuations in equity markets. However, opportunities of capital appreciation are also limited in such funds. The NAVs of such funds are affected because of change in interest rates in the country. If the interest rates fall, NAVs of such funds are likely to increase in the short run and vice versa. However, long term investors may not bother about these fluctuations.
Balanced Fund
The aim of balanced funds is to provide both growth and regular income as such schemes invest both in equities and fixed income securities in the proportion indicated in their offer documents. These are appropriate for investors looking for moderate growth. They generally invest 40-60% in equity and debt instruments. These funds are also affected because of fluctuations in share prices in the stock markets. However, NAVs of such funds are likely to be less volatile compared to pure equity funds.
Money Market or Liquid Fund

These funds are also income funds and their aim is to provide easy liquidity, preservation of capital and moderate income. These schemes invest exclusively in safer short-term instruments such as treasury bills, certificates of deposit, commercial paper and inter-bank call money, government securities, etc. Returns on these schemes fluctuate much less compared to other funds. These funds are appropriate for corporate and individual investors as a means to park their surplus funds for short periods.
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Gilt Fund
These funds invest exclusively in government securities. Government securities have no default risk. NAVs of these schemes also fluctuate due to change in interest rates and other economic factors as is the case with income or debt oriented schemes.
Index Funds
Index Funds replicate the portfolio of a particular index such as the BSE Sensitive index, S&P NSE 50 index (Nifty), etc These schemes invest in the securities in the same weightage comprising of an index. NAVs of such schemes would rise or fall in accordance with the rise or fall in the index, though not exactly by the same percentage due to some factors known as tracking error in technical terms. Necessary disclosures in this regard are made in the offer document of the mutual fund scheme. There are also exchange traded index funds launched by the mutual funds which are traded on the stock exchanges. What are sector specific funds/schemes ? These are the funds/schemes which invest in the securities of only those sectors or industries as specified in the offer documents. e.g. Pharmaceuticals, Software, Fast Moving Consumer Goods (FMCG), Petroleum stocks, etc. The returns in these funds are dependent on the performance of the respective sectors/industries. While these funds may give higher returns, they are more risky compared to diversified funds. Investors need to keep a watch on the performance of those sectors/industries and must exit at an appropriate time. They may also seek advice of an expert. What are Tax Saving Schemes ? These schemes offer tax rebates to the investors under specific provisions of the Income Tax Act, 1961 as the Government offers tax incentives for investment in specified avenues. e.g. Equity Linked Savings Schemes (ELSS). Pension schemes launched by the mutual funds also offer tax benefits. These schemes are growth oriented and invest pre-dominantly in equities. Their growth opportunities and risks associated are like any equity-oriented scheme. What is a Load or no-load Fund ? A Load Fund is one that charges a percentage of NAV for entry or exit. That is, each time one buys or sells units in the fund, a charge will be payable. This charge is used by the mutual fund for marketing and distribution expenses. Suppose the NAV per unit is Rs.10. If the entry as well as exit load charged is 1%, then the investors who buy would be required to pay Rs.10.10 and those who offer their units for repurchase to the mutual fund will get only Rs. 9.90 per unit. The investors should take the loads into consideration while making investment as these affect their yields/returns. However, the investors should also consider the performance track record and service standards of the mutual fund which are more important. Efficient funds may give higher returns in spite of loads. A no-load fund is one that does not charge for entry or exit. It means the investors can enter the fund/scheme at NAV and no additional charges are payable on purchase or sale of units.
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Can a mutual fund impose fresh load or increase the load beyond the level mentioned in the offer documents ? Mutual funds cannot increase the load beyond the level mentioned in the offer document. Any change in the load will be applicable only to prospective investments and not to the original investments. In case of imposition of fresh loads or increase in existing loads, the mutual funds are required to amend their offer documents so that the new investors are aware of loads at the time of investments. What is a sales or repurchase/redemption price ? The price or NAV a unitholder is charged while investing in an open-ended scheme is called sales price. It may include sales load, if applicable. Repurchase or redemption price is the price or NAV at which an open-ended scheme purchases or redeems its units from the unitholders. It may include exit load, if applicable. What is an assured return scheme ? Assured return schemes are those schemes that assure a specific return to the unitholders irrespective of performance of the scheme. A scheme cannot promise returns unless such returns are fully guaranteed by the sponsor or AMC and this is required to be disclosed in the offer document. Investors should carefully read the offer document whether return is assured for the entire period of the scheme or only for a certain period. Some schemes assure returns one year at a time and they review and change it at the beginning of the next year. Can a mutual fund change the asset allocation while deploying funds of investors ? Considering the market trends, any prudent fund managers can change the asset allocation i.e. he can invest higher or lower percentage of the fund in equity or debt instruments compared to what is disclosed in the offer document. It can be done on a short term basis on defensive considerations i.e. to protect the NAV. Hence the fund managers are allowed certain flexibility in altering the asset allocation considering the interest of the investors. In case the mutual fund wants to change the asset allocation on a permanent basis, they are required to inform the unitholders and giving them option to exit the scheme at prevailing NAV without any load. How to invest in a scheme of a mutual fund ? Mutual funds normally come out with an advertisement in newspapers publishing the date of launch of the new schemes. Investors can also contact the agents and distributors of mutual funds who are spread all over the country for necessary information and application forms. Forms can be deposited with mutual funds through the agents and distributors who provide such services. Now a days, the post offices and banks also distribute the units of mutual funds. However, the investors may please note that the mutual funds schemes being marketed by banks and post offices should not be taken as their own schemes and no assurance of returns is given by them. The only role of banks and post offices is to help in distribution of mutual funds schemes to the investors.
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Investors should not be carried away by commission/gifts given by agents/distributors for investing in a particular scheme. On the other hand they must consider the track record of the mutual fund and should take objective decisions. Can non-resident Indians (NRIs) invest in mutual funds ? Yes, non-resident Indians can also invest in mutual funds. Necessary details in this respect are given in the offer documents of the schemes. How much should one invest in debt or equity oriented schemes ? An investor should take into account his risk taking capacity, age factor, financial position, etc. As already mentioned, the schemes invest in different type of securities as disclosed in the offer documents and offer different returns and risks. Investors may also consult financial experts before taking decisions. Agents and distributors may also help in this regard. How to fill up the application form of a mutual fund scheme ? An investor must mention clearly his name, address, number of units applied for and such other information as required in the application form. He must give his bank account number so as to avoid any fraudulent encashment of any cheque/draft issued by the mutual fund at a later date for the purpose of dividend or repurchase. Any changes in the address, bank account number, etc at a later date should be informed to the mutual fund immediately. What should an investor look into an offer document ? An abridged offer document, which contains very useful information, is required to be given to the prospective investor by the mutual fund. The application form for subscription to a scheme is an integral part of the offer document. SEBI has prescribed minimum disclosures in the offer document. An investor, before investing in a scheme, should carefully read the offer document. Due care must be given to portions relating to main features of the scheme, risk factors, initial issue expenses and recurring expenses to be charged to the scheme, entry or exit loads, sponsors track record, educational qualification and work experience of key personnel including fund managers, performance of other schemes launched by the mutual fund in the past, pending litigations and penalties imposed, etc. When will the investor get certificate or statement of account after investing in a mutual fund ? Mutual funds are required to despatch certificates or statements of accounts within six weeks from the date of closure of the initial subscription of the scheme. In case of close-ended schemes, the investors would get either a demat account statement or unit certificates as these are traded in the stock exchanges. In case of open-ended schemes, a statement of account is issued by the mutual fund within 30 days from the date of closure of initial public offer of the scheme. The procedure of repurchase is mentioned in the offer document. How long will it take for transfer of units after purchase from stock markets in case of close-ended schemes ? According to SEBI Regulations, transfer of units is required to be done within thirty days from the date of lodgment of certificates with the mutual fund.
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As a unitholder, how much time will it take to receive dividends/repurchase proceeds ? A mutual fund is required to despatch to the unitholders the dividend warrants within 30 days of the declaration of the dividend and the redemption or repurchase proceeds within 10 working days from the date of redemption or repurchase request made by the unitholder. In case of failures to despatch the redemption/repurchase proceeds within the stipulated time period, Asset Management Company is liable to pay interest as specified by SEBI from time to time (15% at present). Can a mutual fund change the nature of the scheme from the one specified in the offer document ? Yes. However, no change in the nature or terms of the scheme, known as fundamental attributes of the scheme e.g.structure, investment pattern, etc. can be carried out unless a written communication is sent to each unitholder and an advertisement is given in one English daily having nationwide circulation and in a newspaper published in the language of the region where the head office of the mutual fund is situated. The unitholders have the right to exit the scheme at the prevailing NAV without any exit load if they do not want to continue with the scheme. The mutual funds are also required to follow similar procedure while converting the scheme from close-ended to open-ended scheme and in case of change in sponsor. How will an investor come to know about the changes, if any, which may occur in the mutual fund? There may be changes from time to time in a mutual fund. The mutual funds are required to inform any material changes to their unitholders. Apart from it, many mutual funds send quarterly newsletters to their investors. At present, offer documents are required to be revised and updated at least once in two years. In the meantime, new investors are informed about the material changes by way of addendum to the offer document till the time offer document is revised and reprinted. How to know the performance of a mutual fund scheme ? The performance of a scheme is reflected in its net asset value (NAV) which is disclosed on daily basis in case of open-ended schemes and on weekly basis in case of close-ended schemes. The NAVs of mutual funds are required to be published in newspapers. The NAVs are also available on the web sites of mutual funds. All mutual funds are also required to put their NAVs on the web site of Association of Mutual Funds in India (AMFI) www.amfiindia.com and thus the investors can access NAVs of all mutual funds at one place The mutual funds are also required to publish their performance in the form of halfyearly results which also include their returns/yields over a period of time i.e. last six months, 1 year, 3 years, 5 years and since inception of schemes. Investors can also look into other details like percentage of expenses of total assets as these have an affect on the yield and other useful information in the same half-yearly format.
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The mutual funds are also required to send annual report or abridged annual report to the unitholders at the end of the year. Various studies on mutual fund schemes including yields of different schemes are being published by the financial newspapers on a weekly basis. Apart from these, many research agencies also publish research reports on performance of mutual funds including the ranking of various schemes in terms of their performance. Investors should study these reports and keep themselves informed about the performance of various schemes of different mutual funds. Investors can compare the performance of their schemes with those of other mutual funds under the same category. They can also compare the performance of equity oriented schemes with the benchmarks like BSE Sensitive Index, S&P CNX Nifty, etc. On the basis of performance of the mutual funds, the investors should decide when to enter or exit from a mutual fund scheme. How to know where the mutual fund scheme has invested money mobilised from the investors ? The mutual funds are required to disclose full portfolios of all of their schemes on half-yearly basis which are published in the newspapers. Some mutual funds send the portfolios to their unitholders. The scheme portfolio shows investment made in each security i.e. equity, debentures, money market instruments, government securities, etc. and their quantity, market value and % to NAV. These portfolio statements are also required to disclose illiquid securities in the portfolio, investment made in rated and unrated debt securities, non-performing assets (NPAs), etc. Some of the mutual funds send newsletters to the unitholders on quarterly basis which also contain portfolios of the schemes. Is there any difference between investing in a mutual fund and in an initial public offering (IPO) of a company ? Yes, there is a difference. IPOs of companies may open at lower or higher price than the issue price depending on market sentiment and perception of investors. However, in the case of mutual funds, the par value of the units may not rise or fall immediately after allotment. A mutual fund scheme takes some time to make investment in securities. NAV of the scheme depends on the value of securities in which the funds have been deployed. If schemes in the same category of different mutual funds are available, should one choose a scheme with lower NAV ? Some of the investors have the tendency to prefer a scheme that is available at lower NAV compared to the one available at higher NAV. Sometimes, they prefer a new scheme which is issuing units at Rs. 10 whereas the existing schemes in the same category are available at much higher NAVs. Investors may please note that in case of mutual funds schemes, lower or higher NAVs of similar type schemes of different mutual funds have no relevance. On the other hand, investors should choose a scheme based
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on its merit considering performance track record of the mutual fund, service standards, professional management, etc. This is explained in an example given below. Suppose scheme A is available at a NAV of Rs.15 and another scheme B at Rs.90. Both schemes are diversified equity oriented schemes. Investor has put Rs. 9,000 in each of the two schemes. He would get 600 units (9000/15) in scheme A and 100 units (9000/90) in scheme B. Assuming that the markets go up by 10 per cent and both the schemes perform equally good and it is reflected in their NAVs. NAV of scheme A would go up to Rs. 16.50 and that of scheme B to Rs. 99. Thus, the market value of investments would be Rs. 9,900 (600* 16.50) in scheme A and it would be the same amount of Rs. 9900 in scheme B (100*99). The investor would get the same return of 10% on his investment in each of the schemes. Thus, lower or higher NAV of the schemes and allotment of higher or lower number of units within the amount an investor is willing to invest, should not be the factors for making investment decision. Likewise, if a new equity oriented scheme is being offered at Rs.10 and an existing scheme is available for Rs. 90, should not be a factor for decision making by the investor. Similar is the case with income or debt-oriented schemes. On the other hand, it is likely that the better managed scheme with higher NAV may give higher returns compared to a scheme which is available at lower NAV but is not managed efficiently. Similar is the case of fall in NAVs. Efficiently managed scheme at higher NAV may not fall as much as inefficiently managed scheme with lower NAV. Therefore, the investor should give more weightage to the professional management of a scheme instead of lower NAV of any scheme. He may get much higher number of units at lower NAV, but the scheme may not give higher returns if it is not managed efficiently. How to choose a scheme for investment from a number of schemes available ? As already mentioned, the investors must read the offer document of the mutual fund scheme very carefully. They may also look into the past track record of performance of the scheme or other schemes of the same mutual fund. They may also compare the performance with other schemes having similar investment objectives. Though past performance of a scheme is not an indicator of its future performance and good performance in the past may or may not be sustained in the future, this is one of the important factors for making investment decision. In case of debt oriented schemes, apart from looking into past returns, the investors should also see the quality of debt instruments which is reflected in their rating. A scheme with lower rate of return but having investments in better rated instruments may be safer. Similarly, in equities schemes also, investors may look for quality of portfolio. They may also seek advice of experts. Are the companies having names like mutual benefit the same as mutual funds schemes ? Investors should not assume some companies having the name mutual benefit as mutual funds. These companies do not come under the purview of SEBI. On the other hand, mutual funds can mobilise funds from the investors by launching schemes only after getting registered with SEBI as mutual funds. Is the higher net worth of the sponsor a guarantee for better returns ? In the offer document of any mutual fund scheme, financial performance including the net worth of the sponsor for a period of three years is required to be given. The only
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purpose is that the investors should know the track record of the company which has sponsored the mutual fund. However, higher net worth of the sponsor does not mean that the scheme would give better returns or the sponsor would compensate in case the NAV falls. Where can an investor look out for information on mutual funds ? Almost all the mutual funds have their own web sites. Investors can also access the NAVs, half-yearly results and portfolios of all mutual funds at the web site of Association of mutual funds in India (AMFI) www.amfiindia.com. AMFI has also published useful literature for the investors. Investors can log on to the web site of SEBI www.sebi.gov.in and go to Mutual Funds section for information on SEBI regulations and guidelines, data on mutual funds, draft offer documents filed by mutual funds, addresses of mutual funds, etc. Also, in the annual reports of SEBI available on the web site, a lot of information on mutual funds is given. There are a number of other web sites which give a lot of information of various schemes of mutual funds including yields over a period of time. Many newspapers also publish useful information on mutual funds on daily and weekly basis. Investors may approach their agents and distributors to guide them in this regard. If mutual fund scheme is wound up, what happens to money invested ? In case of winding up of a scheme, the mutual funds pay a sum based on prevailing NAV after adjustment of expenses. Unitholders are entitled to receive a report on winding up from the mutual funds which gives all necessary details. How can the investors redress their complaints ? Investors would find the name of contact person in the offer document of the mutual fund scheme whom they may approach in case of any query, complaints or grievances. Trustees of a mutual fund monitor the activities of the mutual fund. The names of the directors of asset management company and trustees are also given in the offer documents. Investors can also approach SEBI for redressal of their complaints. On receipt of complaints, SEBI takes up the matter with the concerned mutual fund and follows up with them till the matter is resolved. What is the procedure for registering a mutual fund with SEBI ? An applicant proposing to sponsor a mutual fund in India must submit an application in Form A along with a fee of Rs. 25,000. The application is examined and once the sponsor satisfies certain conditions such as being in the financial services business and possessing positive net worth for the last five years, having net profit in three out of the last five years and possessing the general reputation of fairness and integrity in all business transactions, it is required to complete the remaining formalities for setting up a mutual fund. These include inter alia, executing the trust deed and investment management agreement, setting up a trustee company/board of trustees comprising two- thirds independent trustees, incorporating the asset management company (AMC), contributing to at least 40% of the net worth of the AMC and appointing a custodian. Upon satisfying these conditions, the registration certificate is issued subject to the payment of registration fees of Rs. 25.00 lacs.
DERIVATIVES FREQUENTLY ASKED QUESTIONS*

What are Derivatives ? The term Derivative indicates that it has no independent value, i.e. its value is entirely derived from the value of the underlying asset. The underlying asset can be securities, commodities, bullion, currency, live stock or anything else. In other words, Derivative means a forward, future, option or any other hybrid contract of pre determined fixed duration, linked for the purpose of contract fulfillment to the value of a specified real or financial asset or to an index of securities. With Securities Laws (Second Amendment) Act,1999, Derivatives has been included in the definition of Securities. The term Derivative has been defined in Securities Contracts (Regulations) Act, as:A Derivative includes (a) a security derived from a debt instrument, share, loan, whether secured or unsecured, risk instrument or contract for differences or any other form of security; (b) a contract which derives its value from the prices, or index of prices, of underlying securities; What is a Futures Contract ? Futures Contract means a legally binding agreement to buy or sell the underlying security on a future date. Future contracts are the organized/standardized contracts in terms of quantity, quality (in case of commodities), delivery time and place for settlement on any date in future. The contract expires on a pre-specified date which is called the expiry date of the contract. On expiry, futures can be settled by delivery of the underlying asset or cash. Cash settlement entails paying/receiving the difference between the price at which the contract was entered and the price of the underlying asset at the time of expiry of the contract. What is an Option Contract ? Options Contract is a type of Derivatives Contract which gives the buyer/holder of the contract the right (but not the obligation) to buy/sell the underlying asset at a predetermined price within or at end of a specified period. The buyer / holder of the option purchases the right from the seller/writer for a consideration which is called the premium. The seller/writer of an option is obligated to settle the option as per the terms of the contract when the buyer/holder exercises his right. The underlying asset could include securities, an index of prices of securities etc.
Reproduced from the website of SEBI (www.sebi.gov.in)
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Under Securities Contracts (Regulations) Act,1956 options in securities has been defined as option in securities means a contract for the purchase or sale of a right to buy or sell, or a right to buy and sell, securities in future, and includes a teji, a mandi, a teji mandi, a galli, a put, a call or a put and call in securities; An Option to buy is called Call option and option to sell is called Put option. Further, if an option that is exercisable on or before the expiry date is called American option and one that is exercisable only on expiry date, is called European option. The price at which the option is to be exercised is called Strike price or Exercise price. Therefore, in the case of American options the buyer has the right to exercise the option at anytime on or before the expiry date. This request for exercise is submitted to the Exchange, which randomly assigns the exercise request to the sellers of the options, who are obligated to settle the terms of the contract within a specified time frame. As in the case of futures contracts, option contracts can be also be settled by delivery of the underlying asset or cash. However, unlike futures cash settlement in option contract entails paying/receiving the difference between the strike price/exercise price and the price of the underlying asset either at the time of expiry of the contract or at the time of exercise / assignment of the option contract. What are Index Futures and Index Option Contracts ? Futures contract based on an index i.e. the underlying asset is the index, are known as Index Futures Contracts. For example, futures contract on NIFTY Index and BSE-30 Index. These contracts derive their value from the value of the underlying index. Similarly, the options contracts, which are based on some index, are known as Index options contract. However, unlike Index Futures, the buyer of Index Option Contracts has only the right but not the obligation to buy / sell the underlying index on expiry. Index Option Contracts are generally European Style options i.e. they can be exercised / assigned only on the expiry date. An index, in turn derives its value from the prices of securities that constitute the index and is created to represent the sentiments of the market as a whole or of a particular sector of the economy (Sectoral Index). By its very nature, index cannot be delivered on maturity of the Index futures or Index option contracts therefore, these contracts are essentially cash settled on Expiry. What is the structure of Derivative Markets in India ? Derivative trading in India can take place either on a separate and independent Derivative Exchange or on a separate segment of an existing Stock Exchange. Derivative Exchange/Segment function as a Self-Regulatory Organisation (SRO) and SEBI acts as the oversight regulator. The clearing & settlement of all trades on the Derivative Exchange/Segment would have to be through a Clearing Corporation/House, which is independent in governance and membership from the Derivative Exchange/Segment. What is the regulatory framework of Derivatives markets in India ? With the amendment in the definition of securities under SC(R)A (to include derivative contracts in the definition of securities), derivatives trading takes place under the
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provisions of the Securities Contracts (Regulation) Act, 1956 and the Securities and Exchange Board of India Act, 1992. Dr. L.C Gupta Committee constituted by SEBI had laid down the regulatory framework for derivative trading in India. SEBI has also framed suggestive bye-law for Derivative Exchanges/Segments and their Clearing Corporation/House which lays down the provisions for trading and settlement of derivative contracts. The Rules, Bye-laws & Regulations of the Derivative Segment of the Exchanges and their Clearing Corporation/ House have to be framed in line with the suggestive Bye-laws. SEBI has also laid the eligibility conditions for Derivative Exchange/Segment and its Clearing Corporation/House. The eligibility conditions have been framed to ensure that Derivative Exchange/Segment & Clearing Corporation/House provide a transparent trading environment, safety & integrity and provide facilities for redressal of investor grievances. Some of the important eligibility conditions are : Derivative trading to take place through an on-line screen based Trading System. The Derivatives Exchange/Segment shall have on-line surveillance capability to monitor positions, prices, and volumes on a real time basis so as to deter market manipulation. The Derivatives Exchange/ Segment should have arrangements for dissemination of information about trades, quantities and quotes on a real time basis through atleast two information vending networks, which are easily accessible to investors across the country. The Derivatives Exchange/Segment should have arbitration and investor grievances redressal mechanism operative from all the four areas / regions of the country. The Derivatives Exchange/Segment should have satisfactory system of monitoring investor complaints and preventing irregularities in trading. The Derivative Segment of the Exchange would have a separate Investor Protection Fund. The Clearing Corporation/House shall perform full novation, i.e., the Clearing Corporation/House shall interpose itself between both legs of every trade, becoming the legal counterparty to both or alternatively should provide an unconditional guarantee for settlement of all trades. The Clearing Corporation/House shall have the capacity to monitor the overall position of Members across both derivatives market and the underlying securities market for those Members who are participating in both. The level of initial margin on Index Futures Contracts shall be related to the risk of loss on the position. The concept of value-at-risk shall be used in calculating required level of initial margins. The initial margins should be large enough to cover the one-day loss that can be encountered on the position on 99% of the days. The Clearing Corporation/House shall establish facilities for electronic funds transfer (EFT) for swift movement of margin payments. In the event of a Member defaulting in meeting its liabilities, the Clearing Corporation/House shall transfer client positions and assets to another solvent Member or close-out all open positions.
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The Clearing Corporation/House should have capabilities to segregate initial margins deposited by Clearing Members for trades on their own account and on account of his client. The Clearing Corporation/House shall hold the clients margin money in trust for the client purposes only and should not allow its diversion for any other purpose. The Clearing Corporation/House shall have a separate Trade Guarantee Fund for the trades executed on Derivative Exchange / Segment. Presently, SEBI has permitted Derivative Trading on the Derivative Segment of BSE and the F&O Segment of NSE. What derivative contracts are permitted by SEBI ? Derivative products have been introduced in a phased manner starting with Index Futures Contracts in June 2000. Index Options and Stock Options were introduced in June 2001 and July 2001 followed by Stock Futures in November 2001. What is minimum contract size ? The Standing Committee on Finance, a Parliamentary Committee, at the time of recommending amendment to Securities Contract (Regulation) Act, 1956 had recommended that the minimum contract size of derivative contracts traded in the Indian Markets should be pegged not below Rs. 2 Lakhs. Based on this recommendation SEBI has specified that the value of a derivative contract should not be less than Rs. 2 Lakh at the time of introducing the contract in the market. What is the lot size of a contract ? Lot size refers to number of underlying securities in one contract. Additionally, for stock specific derivative contracts SEBI has specified that the lot size of the underlying individual security should be in multiples of 100 and fractions, if any, should be rounded of to the next higher multiple of 100. This requirement of SEBI coupled with the requirement of minimum contract size forms the basis of arriving at the lot size of a contract. For example, if shares of XYZ Ltd are quoted at Rs.1000 each and the minimum contract size is Rs.2 lacs, then the lot size for that particular scrips stands to be 200000/ 1000 = 200 shares i.e. one contract in XYZ Ltd. covers 200 shares. What is the margining system in the derivative markets ? Two type of margins have been specified : Initial Margin Based on 99% VaR and worst case loss over a specified horizon, which depends on the time in which Mark to Market margin is collected. Mark to Market Margin (MTM) collected in cash for all Futures contracts and adjusted against the available Liquid Networth for option positions. In the case of Futures Contracts MTM may be considered as Mark to Market Settlement. Dr. L.C Gupta Committee had recommended that the level of initial margin required on a position should be related to the risk of loss on the position. The concept of valueat-risk should be used in calculating required level of initial margins. The initial margins should be large enough to cover the one day loss that can be encountered on the position on 99% of the days. The recommendations of the Dr. L.C Gupta Committee
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have been a guiding principle for SEBI in prescribing the margin computation & collection methodology to the Exchanges. With the introduction of various derivative products in the Indian securities Markets, the margin computation methodology, especially for initial margin, has been modified to address the specific risk characteristics of the product. The margining methodology specified is consistent with the margining system used in developed financial & commodity derivative markets worldwide. The exchanges were given the freedom to either develop their own margin computation system or adapt the systems available internationally to the requirements of SEBI. A portfolio based margining approach which takes an integrated view of the risk involved in the portfolio of each individual client comprising of his positions in all Derivative Contracts i.e. Index Futures, Index Option, Stock Options and Single Stock Futures, has been prescribed. The initial margin requirements are required to be based on the worst case loss of a portfolio of an individual client to cover 99% VaR over a specified time horizon. The Initial Margin is Higher of (Worst Scenario Loss +Calendar Spread Charges) Or Short Option Minimum Charge The worst scenario loss are required to be computed for a portfolio of a client and is calculated by valuing the portfolio under 16 scenarios of probable changes in the value and the volatility of the Index/ Individual Stocks. The options and futures positions in a clients portfolio are required to be valued by predicting the price and the volatility of the underlying over a specified horizon so that 99% of times the price and volatility so predicted does not exceed the maximum and minimum price or volatility scenario. In this manner initial margin of 99% VaR is achieved. The specified horizon is dependent on the time of collection of mark to market margin by the exchange. The probable change in the price of the underlying over the specified horizon i.e. price scan range, in the case of Index futures and Index option contracts are based on three standard deviation (3s ) where s is the volatility estimate of the Index. The volatility estimate s , is computed as per the Exponentially Weighted Moving Average methodology. This methodology has been prescribed by SEBI. In case of option and futures on individual stocks the price scan range is based on three and a half standard deviation (3.5s ) where s is the daily volatility estimate of individual stock. For Index Futures and Stock futures it is specified that a minimum margin of 5% and 7.5% would be charged. This means if for stock futures the 3.5s value falls below 7.5% then a minimum of 7.5% should be charged. This could be achieved by adjusting the price scan range. The probable change in the volatility of the underlying i.e. volatility scan range is fixed at 4% for Index options and is fixed at 10% for options on Individual stocks. The volatility scan range is applicable only for option products. Calendar spreads are offsetting positions in two contracts in the same underlying across different expiry. In a portfolio based margining approach all calendar-spread positions automatically get a margin offset. However, risk arising due to difference in cost of carry or the basis risk needs to be addressed. It is therefore specified that a
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calendar spread charge would be added to the worst scenario loss for arriving at the initial margin. For computing calendar spread charge, the system first identifies spread positions and then the spread charge which is 0.5% per month on the far leg of the spread with a minimum of 1% and maximum of 3%. Further, in the last three days of the expiry of the near leg of spread, both the legs of the calendar spread would be treated as separate individual positions. In a portfolio of futures and options, the non-linear nature of options make short option positions most risky. Especially, short deep out of the money options, which are highly susceptible to, changes in prices of the underlying. Therefore a short option minimum charge has been specified. The short option minimum charge is 5% and 7.5% of the notional value of all short Index option and stock option contracts respectively. The short option minimum charge is the initial margin if the sum of the worst scenario loss and calendar spread charge is lower than the short option minimum charge. To calculate volatility estimates the exchange are required to use the methodology specified in the Prof J.R Varma Committee Report on Risk Containment Measures for Index Futures. Further, to calculated the option value the exchanges can use standard option pricing models - Black-Scholes, Binomial, Merton, Adesi-Whaley. The initial margin is required to be computed on a real time basis and has two components: The first is creation of risk arrays taking prices at discreet times taking latest prices and volatility estimates at the discreet times, which have been specified. The second is the application of the risk arrays on the actual portfolio positions to compute the portfolio values and the initial margin on a real time basis. The initial margin so computed is deducted form the available Liquid Networth on a real time basis.
Mark to Market Margin Options The value of the option are calculated as the theoretical value of the option times the number of option contracts (positive for long options and negetive for short options). This Net Option Value is added to the Liquid Networth of the Clearing member. Thus MTM gains and losses on options are adjusted against the available liquid networth. The net option value is computed using the closing price of the option and are applied the next day. Futures The system computes the closing price of each series, which is used for computing mark to market settlement for cumulative net position. This margin is collected on T+1 in cash. Therefore, the exchange charges a higher initial margin by multiplying the price scan range of 3s & 3.5s with square root of 2, so that the initial margin is adequate to cover 99% VaR over a two days horizon.
MARGIN COLLECTION
Initial Margin - is adjusted from the available Liquid Networth of the Clearing Member on an online real time basis. Marked to Market Margins Futures contracts : The open positions (gross against clients and net of proprietary/ self trading) in the futures contracts for each member is marked to market to the
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SUPPLEMENT FOR SECURITIES LAWS & REGULATION OF FINANCIAL MARKETS daily settlement price of the Futures contracts at the end of each trading day. The daily settlement price at the end of each day is the weighted average price of the last half an hour of the futures contract. The profits / losses arising from the difference between the trading price and the settlement price are collected / given to all the clearing members.
Option Contracts : The marked to market for Option contracts is computed and collected as part of the SPAN Margin in the form of Net Option Value. The SPAN Margin is collected on an online real time basis based on the data feeds given to the system at discrete time intervals. Client Margins
Clearing Members and Trading Members are required to collect initial margins from all their clients. The collection of margins at client level in the derivative markets is essential as derivatives are leveraged products and non-collection of margins at the client level would provided zero cost leverage. In the derivative markets all money paid by the client towards margins is kept in trust with the Clearing House/ Clearing corporation and in the event of default of the Trading or Clearing Member the amounts paid by the client towards margins are segregated and not utilised towards the default of the member. Therefore, Clearing members are required to report on a daily basis details in respect of such margin amounts due and collected from their Trading members / clients clearing and settling through them. Trading members are also required to report on a daily basis details of the amount due and collected from their clients. The reporting of the collection of the margins by the clients is done electronically through the system at the end of each trading day. The reporting of collection of client level margins plays a crucial role not only in ensuring that members collect margin from clients but it also provides the clearing corporation with a record of the quantum of funds it has to keep in trust for the clients. What are the position limits in Derivative Products ? The position limits specified are as under
Client / Customer level position limits

For index based products there is a disclosure requirement for clients whose position exceeds 15% of the open interest of the market in index products. For stock specific products the gross open position across all derivative contracts on a particular underlying of a customer/client should not exceed the higher of 1% of the free float market capitalisation (in terms of number of shares). or 5% of the open interest in the derivative contracts on a particular underlying stock (in terms of number of contracts). This position limits are applicable on the combine position in all derivative contracts on an underlying stock at an exchange. The exchanges are required to achieve client level position monitoring in stages.
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Trading Member Level Position Limits

For Index products the Trading Member position limits are Rs. 100 crore or 15% of the open interest whichever is higher. For stock specific products the trading member position limit are at 7.5% of the open interest or Rs 50 crore whichever is higher for derivative contract in a particular underlying at an exchange. It is also specified that once a member reaches the position limit in a particular underlying then the member shall be permitted to take only offsetting positions (which result in lowering the open position of the member) in derivative contracts on that underlying. In the event that the position limit is breached due to the reduction in the overall open interest in the market, the member shall be permitted to take only offsetting positions (which result in lowering the open position of the member) in derivative contract in that underlying and no fresh positions shall be permitted. The position limit at trading member level are required to be be computed on a gross basis across all clients of the Trading member.
Market wide limits

There are no market wide limits for index products. However for stock specific products the market wide limit of open positions (in terms of the number of underlying stock) on an option and futures contract on a particular underlying stock would be lower of 30 times the average number of shares traded daily, during the previous calendar month, in the cash segment of the Exchange, or 10% of the number of shares held by non-promoters i.e. 10% of the free float, in terms of number of shares of a company. It is further specified that when the total open interest in a contract reaches 80% of the market wide limit in that contract, the exchanges would double the price scan range and volatility scan range specified. The exchanges are required to continuously review the impact of this measure and take further proactive risk containment measures as may be appropriate, including, further increases in the scan ranges and levying additional margins. What measures have been specified by SEBI to protect the rights of investor in the Derivative Market ? The measures specified by SEBI include: 1. Investors money has to be kept separate at all levels and is permitted to be used only against the liability of the Investor and is not available to the trading member or clearing member or even any other investor. 2. The Trading Member is required to provide every investor with a risk disclosure document which will disclose the risks associated with the derivatives trading so that investors can take a conscious decision to trade in derivatives.
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SUPPLEMENT FOR SECURITIES LAWS & REGULATION OF FINANCIAL MARKETS 3. Investor would get the contract note duly time stamped for receipt of the order and execution of the order. The order will be executed with the identity of the client and without client ID order will not be accepted by the system. The investor could also demand the trade confirmation slip with his ID in support of the contract note. This will protect him from the risk of price favour, if any, extended by the Member. 4. In the derivative markets all money paid by the Investor towards margins on all open positions is kept in trust with the Clearing House/ Clearing corporation and in the event of default of the Trading or Clearing Member the amounts paid by the client towards margins are segregated and not utilised towards the default of the member. However, in the event of a default of a member, losses suffered by the Investor, if any, on settled / closed out position are compensated from the Investor Protection Fund, as per the rules, bye-laws and regulations of the derivative segment of the exchanges.
CENTRAL LISTING AND DELISTING OF SECURITIES

I. CENTRAL LISTING AUTHORITY
In exercise of the powers conferred by Clause (d) of Sub-section (2) of Section 11 and Sub-section(2) of Section 11A read with Section 30 of the Securities and Exchange Board of India Act, 1992, the Board notified the Securities and Exchange Board of India (Central Listing Authority) Regulations, 2003 on February 13, 2003. SEBI, through its SEBI (Central Listing Authority) Regulations, 2003 has provided for establishment of a self-regulatory authority Central Listing Authority (CLA). The functions of CLA will include processing the application made by any body corporate, mutual fund or collective investment scheme for the letter of recommendation for listing; and making recommendations as to listing conditions. The CLA may also perform any other function as may be specified by SEBI from time to time. Constitution The CLA shall consist of a President, Vice-President and not more than nine other members, who will be appointed by SEBI and will be drawn from the judiciary, lawyers, academicians, exchanges, persons having expertise in securities market regulation, financial experts and investor associations. At least four members shall be representatives of stock exchanges but shall not draw any remuneration from the CLA. The remuneration and the terms and conditions of appointment of the President and the Members shall be specified by SEBI. Term of office The President and members shall have a term of 3 years and shall not qualify for reappointment as President or members of CLA if the person has already been a member for two terms of 3 years each. No member / President shall hold office after he has attained the age of 65 years. Quorum The quorum for proceedings of the CLA shall be minimum four members. While considering an application for letter of recommendation, at least more than 50% of the members present shall be other than the representatives of stock exchanges. Fund CLA shall constitute a Central Listing Authority General Fund. Any processing fees received by the CLA and all sums received from other sources as decided by SEBI shall be credited to the fund. The fund shall be utilised for paying the remuneration to President/ members / employees of the CLA and also meeting the expenses of the CLA in discharge of its functions. Application for letter of recommendation A company seeking listing of fresh securities would make an application accompanied by the specified fees in a prescribed format first to the CLA for obtaining the letter of 65
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recommendation. The CLA may direct the applicant to furnish such further information / clarification as may be required for the purpose of processing the application. CLA shall give its opinion within 30 days of making application / furnishing information. However, the Authority shall not refuse to grant the letter of recommendation unless an opportunity is given to the applicant for making representation. Once the order is signed, the CLA shall cause it to be communicated to the applicant and the exchange(s) where listing was sought. Power to direct listing In case CLA refuses to grant the letter of recommendation, the applicant may within 10 days of receipt of refusal make a written submission to the SEBI to direct CLA to grant the letter of recommendation. SEBI, within 15 days of receipt of such submission shall take a decision. In case it directs the CLA to grant the letter of recommendation, the Central Listing Authority shall grant the letter within 7 days. Refusal of listing by exchange & Appeal The stock exchange would independently decide on whether to list the security or not with reference to its listing criteria. A body corporate, mutual fund or collective investment scheme may prefer an appeal to the Securities Appellate Tribunal as provided in section 22A of the Securities Contracts (Regulation) Act, 1956 against the decision of the exchange refusing the listing. Listing conditions The Authority may from time to time, review the Listing Conditions or the provisions of the Listing Agreement, for the purpose of making recommendations to SEBI for their amendment. Power to regulate its own procedure Subject to the provisions of the Regulations and with the prior approval of SEBI, CLA shall have the power to regulate its own procedure and frame operational guidelines for the performance of its functions. Power of SEBI to supersede CLA If SEBI is of the opinion that CLA is unable to discharge its functions and duties or if the circumstances so require, SEBI may supersede CLA. Reports CLA shall furnish returns and statements to SEBI in the form and manner specified by it. CLA shall also, within 30 days after the end of each calendar quarter, submit a report to SEBI, giving a true account of its activities during the previous quarter. II. SEBI (Delisting of Securities) Guidelines, 2003 A Discussion The Securities and Exchange Board of India (Delisting of Securities Guidelines), 2003 were issued under Section 11(1) of SEBI Act, 1992, read with sub-section (2) of
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Section 11A of SEBI Act, with the objective to protect the interest of investors in the securities market. The Guidelines deals with Voluntary and Compulsory delisting. Applicability As per Guideline 4 of the SEBI Delisting Guidelines 2003, the guidelines applies to delisting of securities of companies and specifically apply to: (a) Voluntary delisting being sought by the promoters of a company; (b) Any acquisition of shares of the company (either by a promoter or by any other person) or scheme or arrangement, by whatever name referred to. consequent to which the public shareholding falls below the minimum limit specified in the listing conditions or listing agreement that may result in delisting of securities; (c) Promoters of the companies who voluntarily seek to delist their securities from all or some of the stock exchanges; (d) Cases where a person in control of the management is seeking to consolidate his holdings in a company, in a manner which would result in the public shareholding in the company falling below the limit specified in the listing conditions or in the listing agreement that may have the effect of company being delisted; (e) Companies which may be compulsorily delisted by the stock exchanges. As can be seen from above that four modes of voluntary delisting are prescribed under (a) to (d) of Guideline 4 of Delisting Guidelines, 2003. Further an additional note of delisting is covered under Guideline 17 of Delisting Guidelines, 2003 which specifies that: In case of rights issue, allotment to the promoters or the persons in control of the management shall be allowed even if they subscribe to unsubscribed portion which may result in public shareholding falling below the permissible minimum level. It is provided that the adequate disclosures have been made in the offer document to that effect. It is further provided that they agree to buy out the remaining holders at the price of rights issue or make an offer for sale to bring the public shareholding at the level specified in the listing conditions or listing agreement to remain listed. In case the rights issue is not fully subscribed, which may result in the public shareholding falling below the permissible minimum level as specified in the listing condition or listing agreement, the promoter(s) of the company shall be required to delist by providing an exit opportunity in the manner specified in Guideline 17.1 of Delisitng Guidelines, 2003 or may be required to make offer for sale of their holdings so that the public shareholding is raised to the minimum, level specified in the listing agreement or in the listing conditions within a period of 3 months. The term Rights issue is defined in clause 1.2.1 (xxv) of SEBI (Disclosure and Investor Protection) Guidelines 2000. It means an issue of capital under sub-section (1) of Section 81 of the Companies Act, 1956, to be offered to the existing shareholders of the company through a Letter of Offer.
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Thus, Delisting Guidelines 2003 applies to any event/action on the part of Corporates which necessitates/results into delisting of securities from stock exchange(s). Delisting Guidelines, 2003 specifically applies to the modes specified in (a) to (e) above. Para (a) and (c) above seems to convey one and the same meaning, i.e. When the promoters of a company are seeking voluntary delisting. It may be noted here that these guidelines envisages that public shareholding is not reduced below minimum level. Para (b) provides for two situations: (i) when as a result of acquisition of shares of the company (either by a promoter or by any other person), as a result of which the public shareholding falls below the minimum limit specified in the listing conditions or listing agreement which may result into delisting of securities; (ii) when as a result of, acquisition of shares of the company pursuant to any Scheme or arrangement, by whatever name called, the public shareholding falls below the minimum limit specified in the listing conditions or listing agreement which may result into delisting of securities; Both situation of Para (b) above are analyzed here under: Delisting Guidelines, 2003 do not specifically provide procedure for this mode of delisting. (i) In case of acquisition by promoter or any other person, SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 applies and accordingly while making Public Announcement under Takeover Regulations, acquirer may declare its intention to delist securities after acquisition. After acquisition under Takeover Regulations is complete, if securities of the company continue to be listed with BSE/NSE then no exit offer under Delisting Guidelines, 2003 needs to be made And in case, after acquisition under takeover regulations is completed, if securities of the company to be delisted from all stock exchanges, including BSE & NSE, then exit offer under Delisting Guidelines, 2003 needs to be made. (ii) In case of scheme of merger, amalgamation or arrangement of listed company with unlisted company, it is not clear that what exit price, the shareholders of Transferor Company will get? Whether exit price is to be determined as per Delisting Guidelines, 2003 or as per exchange ratio under the scheme or arrangement? However it can be stated that, in such scheme or arrangement, the exit price as per Delisting Guidelines, 2003 will apply, since it is specifically stated under Delising Guidelines, 2003 that it applies to delisting through any scheme or arrangement. It may also be noted that in case of shares of the listed company which are frequently traded, the pricing norms (exit price) varies under the Takeover regulations and under the Delisting Guidelines 2003. Para (d) : If the person in control of the management is seeking to consolidate his holdings in a company, in a manner which would result in the public shareholding in the company falling below the limit specified in the listing conditions or in the listing agreement which may have the effect of company being delisted; It is clarified in Delisting Guidelines, 2003 itself that there shall not be any compulsion for the existing company to remain listed on any stock exchange merely because it is a
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regional stock exchange. In other words, it can get delisted even from regional stock exchange. Eligibility Criteria for Voluntary Deiisting 1. 2. 3. The securities of the company have been listed for a minimum period of 3 years on any stock exchange. A company, which has a convertible instrument outstanding, shall not be permitted to delist its equity shares, till the exercise of the conversion options. A company may delist one or all of its class of securities. However, if the equity shares of a company are delisted, the fixed income securities may continue to remain listed on the stock exchange. Determine an exit price in accordance with the book building process described in the Delisting Guidelines.
4.
Important Conditions for Voluntary Delisting 1. Company is not permitted to use the buy-back provision to delist its securities. 2. The amount of consideration for the tendered and accepted securities shall be settled in cash. The payment of consideration for delisting of securities shall be paid in cash by the promoter or acquirer. 3. Where securities are proposed to be delisted from all the stock exchanges, an exit opportunity has been given to the investors for the purpose of which an exit price shall be determined in accordance with the book building process described in clauses 7 to 10 and 13 and 14 of the Delisting Guidelines, 2003. It may be noted that Clause 7 deals with Public announcement, Clause 8 deals with Exit price for voluntary delisting,Clause 9 deals with rights of promoters, Clause 10 deals with Public Announcement of final price, Clause 13 deals with payment of consideration which shall be paid in cash by the promoter or acquirer, and Clause 14 deals with delisting of one or all class of securities. 4. In case of partly paid-up securities, the price determined by the book building process shall be applicable to the extent the call has been made and paid. 5. In the case of infrequently traded securities the offer price shall be as per regulation 20(5) of the SEBI (Substantial Acquisition of Shares and Takeover) Regulations, and the infrequently traded securities shall be determined in the manner explained under regulation 20(5) of the SEBI (Substantial Acquisition and Takeover) Regulations. 6. The promoter may not accept the securities at the offer price determined by the book building process. However, adequate disclosure may be made in public announcement & in the offer letter/form sent to the shareholders. 7. Where securities continue to be listed in a stock exchange having nation wide trading terminals, an exit opportunity need not be given. At present SEBI has recognized the Stock Exchange, Mumbai and the National Stock Exchange as the stock exchanges having nation wide trading terminals. However SEBI has reserved the right to specify other stock exchange(s) as having nation wide trading terminals. 8. When a company which is listed on any stock exchange or stock exchanges
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SUPPLEMENT FOR SECURITIES LAWS & REGULATION OF FINANCIAL MARKETS other than BSE &/or NSE (i.e., the stock exchanges having nationwide trading terminals), seeks delisting, an exit offer shall be made to the shareholders in accordance with Delisting Guidelines, 2003. There shall not be any compulsion for the existing company to remain listed on any stock exchange merely because it is a regional stock exchange. 9. Before making the public announcement, the promoter shall appoint a merchant banker registered with the Board, who is not an associate of the promoter. 10. Before making application for delisting, the promoters or the acquirers of the company shall make a public announcement.
Procedure for Voluntary Delisting from all stock Exchanges (1) Any promoter or acquirer desirous of delisting securities of the company under the provisions of Delisting Guidelines, 2003 shall : (a) Obtain the prior approval of shareholders of the company by a special resolution passed at its general meeting. However, Delisitng Guidelines, 2003 is silent on validity period of special resolution within which company shall complete delisting formalities. As a good corporate practice Delisting to be completed within a period of one year of passing special resolution. (b) The promoter shall appoint a merchant banker registered with SEBI, who is not an associate of the promoter. (c) Any promoter of a company, which desires to delist from the stock exchange, shall determine an exit price for delisting of securities in accordance with the book building process described in Schedule II of Delisting Guidelines, 2003. (d) The offer price shall have a floor price, which will be the average of 26 weeks traded price quoted on the stock exchange where the shares of the company are most frequently traded during preceding 26 week from the date of the public announcement and without any ceiling of maximum price. (e) The promoters or the acquirers of the company shall make a public announcement, in news papers containing, inter alia, information specified in Schedule I to the Delisting Guidelines, 2003. However, Guidelines are silent on the area of circulation & the language of newspapers. (f ) If the quantity eligible for acquiring securities at the final price offered does not result in public shareholding falling below required level of public holding for continuous listing, the company shall remain listed. (g) The paid up share capital shall not be extinguished as in the case of buyback of securities. (h) On determination of the final price pursuant to the book building, the promoter or the acquirer shall within a period of two working days from such determination: (a) make a public announcement in the newspapers of the final price as discovered by the book building process and whether or not the promoter or the acquirer has accepted the price; and, (b) communicate to, exchange or exchanges from which delisting is sought to be made, the final price discovered and whether the promoter has arcepted the price.
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(i) Where the promoter decides not to accept the offer price so determined: (i) he shall not make an application to the exchange for delisting of the securities; and (ii) the promoter shall ensure that the public shareholding is brought up to the minimum limits specified under the listing conditions within a period of 6 months from the date of such decision, by any of the modes specified below : (iii) intensity price at which right issue made not to be taken into account which determining floor price. (a) by issue of new shares by the company in compliance with the provisions of the Companies Act, 1956 and the Securities and Exchange Board of India (Disclosure and Investor Protection) Guidelines, 2000; (b) by the promoter making an offer for sale of his holdings in compliance with the provisions of the Companies Act, 1956 and the Securities and Exchange Board of India (Disclosure and Investor Protection) Guidelines, 2000; (c) by the promoter making sale of his holdings through the secondary market in a transparent manner. (iv) In the event of the promoter not being able to raise the public shareholding in accordance with (ii) above, within six months, he shall offer for sale to the public such portion of his holdings as would bring up the public shareholding to the minimum limits specified in the listing agreement or the listing conditions at the price determined by the Central Listing Authority. (j) Make an application to the stock exchange (delisting exchange) from where it is proposed to delist shares. Such an application shall be in the form to be specified by the exchange, annexing therewith a copy of the special resolution passed at general meeting. (k) Comply with such other additional conditions as may be specified by the concerned stock exchanges from where securities are to be delisted. (l) In the event of securities being delisted, the acquirer shall allow a further period of 6 months for any of the remaining shareholders to tender securities at the same price. Note : 1. Where the offer for delisting results in acceptance of a fewer number of shares than the total shares outstanding and as a consequence the public shareholding does not fall below the minimum limit specified by the listing conditions or the listing agreement, the offer shall be considered to have failed and no securities shall be acquired pursuant to such offer. Role of stock exchange : The stock exchange (s) shall provide the infrastructure facility for display of the price at the terminals of the trading members to enable the investors to access the price on the screen to bring transparency to the delisting process. The stock exchanges shall monitor
2.
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SUPPLEMENT FOR SECURITIES LAWS & REGULATION OF FINANCIAL MARKETS the possibility of price manipulation and keep under special watch the securities for which announcement for delisting has been made. 3. To ascertain the genuineness of physical securities if tendered and to avoid the bad delivery, Registrar and Transfer Agent shall co-operate with the Clearing House / Clearing Corporation to determine the quality of the papers upfront. 4. 5. Voluntary delisting by right issue, above procedure to be followed after right issue is completed. As a good corporate practice, entire procedure of voluntary delisiting to be completed within 1 year of passing of special resolution. Interestingly, price at which right issue made is not to be taken into account while determining the floor price.
(2) Schedule I to the Delisting Guidelines 2003 specifies contents of Public Announcement as under. 1. The floor price and how it was reached. 2. The dates of opening and closing of the bidding. It may be noted that under Schedule II (4) the offer to buy shall remain open to the security holders for a minimum period of three days. The security holders shall have a right to revise their bids before the closing of the bidding. 3. The name of the exchange or exchanges from which the securities are sought to be delisted. Though Delisitng Guidelines, 2003 is silent, names of all stock exchanges, where its securities are listed shall be stated along with names of stock exchanges from where it is proposed to delist. 4. The names and addresses of the trading members as well as the bidding terminals and centres through which bids can be placed. 5. Description of the methodology to be adopted for determination of acceptable price. The company intending to delist from all stock exchanges, shall pay exit price, which shall be ascertained as per Book Building process described under Schedule II to Delisitng Guidelines, 2003. 6. Period for which the offer shall be valid. 7. The necessity and the object of the delisting. The necessity for delisting could be (i) unlisted company taking over listed company, (ii) scheme of arrangement or amalgamation or restructuring may necessacitate delisting (iii) promoters consolidating their shareholding and as a result public shareholding falling below the minimum specified under the listing condition/agreement (iv) unsubscribed portion of rights issue being absorbed by the promoters and consequently public shareholding falling below the minimum specified under the listing condition/agreement. 8. A full and complete disclosure of all material facts. 9. The proposed timetable from opening of the offer till the settlement of the transfers.
SUPPLEMENT FOR SECURITIES LAWS & REGULATION OF FINANCIAL MARKETS 10. Details of the escrow account and the amount deposited therein. 11. Listing details and stock market data:
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(a) high, low and average market prices of the securities of the company during the preceding three years; (b) monthly high and low prices for the six months preceding the date of the public announcement; and, (c) the volume of securities traded in each month during the six months preceding the date of public announcement. (d) Details pertaining to stock exchange(s)from where the company proposes to delist shall be stated here. 12. Present capital structure and shareholding pattern. Shareholding pattern as required under clause 35 of the listing agreement may be published. 13. The likely post-delisting capital structure. Also mention about likely postdelisting shareholding pattern. 14. The aggregate shareholding of the promoter group and of the directors of the promoters where the promoter is a company and of persons who are in control of the company. 15. Name of compliance officer of the company. 16. It should be signed and dated by the promoter. Public Announcement may state that : (i) where the offer for delisting results in acceptance of a fewer number of shares than the total shares outstanding and as a consequence the public shareholding does not fall below the minimum limit specified by the listing conditions or the listing agreement, the offer shall be considered to have failed and no securities shall be acquired pursuant to such offer. (ii) The promoter may not accept the securities at the offer price determined by the book building process.
AN ANALYSIS OF REVISED CLAUSE 49 OF THE LISTING AGREEMENT*

INTRODUCTION Good Governance in capital market has always been high on the agenda of SEBI. Corporate Governance is looked upon as a distinctive brand and benchmark in the profile of Corporate Excellence. This is evident from the continuous updation of guidelines, rules and regulations by SEBI for ensuring transparency and accountability. In the process, SEBI had constituted a Committee on Corporate Governance under the Chairmanship of Shri Kumar Mangalam Birla. The Committee in its report observed that the strong Corporate Governance is indispensable to resilient and vibrant capital markets and is an important instrument of investor protection. It is the blood that fills the veins of transparent corporate disclosure and high quality accounting practices. It is the muscle that moves a viable and accessible financial reporting structure. Based on the recommendations of the Committee, the SEBI had specified principles of Corporate Governance and introduced a new clause 49 in the Listing agreement of the Stock Exchanges in the year 2000. These principles of Corporate Governance were made applicable in a phased manner and all the listed companies with the paid up capital of Rs 3 crores and above or net worth of Rs 25 crores or more at any time in the history of the company, were covered as of March 31, 2003. SEBI, as part of its endeavour to improve the standards of corporate governance in line with the needs of a dynamic market, constituted another Committee on Corporate Governance under the Chairmanship of Shri N. R. Narayana Murthy to review the performance of Corporate Governance and to determine the role of companies in responding to rumour and other price sensitive information circulating in the market in order to enhance the transparency and integrity of the market. The Committee in its Report observed that the effectiveness of a system of Corporate Governance cannot be legislated by law, nor can any system of Corporate Governance be static. In a dynamic environment, system of Corporate Governance need to be continually evolved. With a view to promote and raise the standards of Corporate Governance, SEBI on the basis of recommendations of the Committee and public comments received on the report and in exercise of powers conferred by Section 11(1) of the Securities and
*
Based on Circular SEBI/MRD/SE/31/2003/26/08 dated 26 August, 2003 issued by SEBI. To review the clause 49 revised vide circular dated 26 August 2003, a meeting of Naryana Murthy Committee was convened and the committee submitted its report which was placed on SEBI website for public comments and the implementation of circular dated 26 August, 2003 has been kept in abeyance. Thus the, revised clause issued vide circular dated 26 Aug. 2003 is not applicable for June 2004 examination of CS course.
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Exchange Board of India Act, 1992 read with section 10 of the Securities Contracts (Regulation) Act 1956, revised the existing clause 49 of the Listing agreement vide its circular SEBI/MRD/SE/31/2003/26/08 dated August 26, 2003. Schedule of Implementation The circular specifies following schedule of implementation of the revised clause 49 : (i) All entities seeking listing for the first time, at the time of listing, (ii) All listed entities having a paid up share capital of Rs 3 crores and above or net worth of Rs 25 crores or more at any time in the history of the company. The companies are required to comply with the requirements of the clause on or before March 31, 2004. The companies which are required to comply with the requirements of the revised clause 49 have been put under an obligation to submit a quarterly compliance report to the stock exchanges as per sub clause (IX) (ii), of the revised clause 49, within 15 days from the quarter ending 31st March, 2004. The report is required to be submitted either by the Compliance Officer or the Chief Executive Officer of the company after obtaining due approvals. Application of Revised Clause 49 The revised clause 49 is applicable to the listed companies, in accordance with the schedule of implementation given above. However, for other listed entities, which are not companies, but body corporates (e.g. private and public sector banks, financial institutions, insurance companies etc.) incorporated under other statutes, the revised clause will apply to the extent that it does not violate their respective statutes, and guidelines or directives issued by the relevant regulatory authorities. The revised clause is not applicable to the Mutual Fund Schemes. Obligations on Stock Exchanges The Stock Exchanges are put under obligation to ensure that all the provisions of Corporate Governance have been complied with by the company seeking listing for the first time, before granting any new listing. For this purpose, it would be satisfactory compliance if these companies set up the Boards and constitute committees such as Audit Committee, shareholders/ investors grievances committee, etc. before seeking listing. The stock exchanges have been empowered to grant a reasonable time to comply with these conditions if they are satisfied that genuine legal issues exists which will delay such compliance. In such cases while granting listing, the stock exchanges are required to obtain a suitable undertaking from the company. In case of the company failing to comply with this requirement without any genuine reason, the application money shall be kept in an escrow account till the conditions are complied with. The Stock Exchanges have also been required to set up a separate monitoring cell with identified personnel to monitor the compliance with the provisions of the Corporate Governance, and to obtain the quarterly compliance report from the companies which are required to comply with the requirements of Corporate Governance. The stock exchanges are required to submit a consolidated compliance report to SEBI within 30 days of the end of each quarter.
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HIGHLIGHTS OF THE AMENDMENTS 1. Widening the Definition of Independent Director Under the revised clause 49, the definition of the expression independent director has been expanded. The expression independent director mean non-executive director of the company who (a) apart from receiving directors remuneration, does not have any material pecuniary relationships or transactions with the company, its promoters, its senior management or its holding company, its subsidiaries and associated companies; (b) is not related to promoters or management at the board level or at one level below the board; (c) has not been an executive of the company in the immediately preceding three financial years; (d) is not a partner or an executive of the statutory audit firm or the internal audit firm that is associated with the company, and has not been a partner or an executive of any such firm for the last three years. This will also apply to legal firm(s) and consulting firm(s) that have a material association with the entity. (e) is not a supplier, service provider or customer of the company. This should include lessor-lessee type relationships also; and (f) is not a substantial shareholder of the company, i.e. owning two percent or more of the block of voting shares. It has been clarified that the Institutional Directors on the boards of companies are independent directors whether the institution is an investing institution or a lending institution. 2. Compensation to Non Executive Directors and Disclosure thereof As per earlier clause 49, the compensation to be paid to non-executive directors was fixed by the Board of Directors, whereas the revised clause requires all compensation paid to non-executive directors to be fixed by the Board of Directors and to be approved by shareholders in general meeting. There is also provision for setting up of limits for the maximum number of stock options that can be granted to non-executive directors in any financial year and in aggregate. The stock options granted to the non-executive directors to be vested after a period of at least one year from the date of retirement of such non-executive directors. Placing the independent directors and non-executive directors on equal footing, the revised clause provides that the considerations as regards compensation paid to an independent director shall be the same as those applied to a non-executive director. The companies have been put under an obligation to publish their compensation philosophy and statement of entitled compensation in respect of non-executive directors in its annual report. Alternatively, this may be put up on the companys website and a reference thereto in the annual report. The company is also required to disclose on an annual basis, details of shares held by non-executive directors, including on an if-converted basis.
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The revised clause also requires non-executive directors to disclose prior to their appointment their stock holding (both own or held by / for other persons on a beneficial basis) in the listed company in which they are proposed to be appointed as directors. These details are required to be accompanied with their notice of appointment. 3. Periodical Review by Independent Director The revised clause 49 requires the Independent Director to periodically review legal compliance reports prepared by the company and any steps taken by the company to cure any taint. The revised clause specifies that no defence shall be permitted that the independent director was unaware of this responsibility in case of any proceedings against him in connection with the affairs of the company. 4. Code of Conduct The revised clause 49 requires the Board of a company to lay down the code of conduct for all Board members and senior management of a company and the same to be posted on the website of the company. Accordingly, all Board members and senior management personnel have been put under an obligation to affirm compliance with the code on an annual basis and a declaration to this effect signed by the CEO and COO is to be given in the Annual Report of the Company. It has been clarified that the term senior management will include personnel of the company who are members of its management / operating council (i.e. core management team excluding Board of Directors). Normally, this would comprise all members of management one level below the executive directors. 5. NonExecutive Directors Not to hold office for more than Nine Years Revised clause 49 limits the term of the office of the non-executive director and provides that a person shall be eligible for the office of non-executive director so long as the term of office does not exceed nine years in three terms of three years each, running continuously. 6. Audit Committee Two explanations have been added in the revised clause 49. The first explanation defines the term financially literate to mean the ability to read and understand basic financial statements i.e. balance sheet, profit and loss account, and statement of cash flows. It has also been clarified that a member is considered to have accounting or related financial management expertise if he or she possesses experience in finance or accounting, or requisite professional certification in accounting, or any other comparable experience or background which results in the individuals financial sophistication, including being or having been a Chief Executive Officer(CEO), Chief Financial Officer(CFO), or other senior officer with financial oversight responsibilities. 7. Review of information by Audit Committee The Audit Committee is required to mandatorily review financial statements and draft audit report, including quarterly / half-yearly financial information, management discussion and analysis of financial condition and results of operations, reports
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SUPPLEMENT FOR SECURITIES LAWS & REGULATION OF FINANCIAL MARKETS relating to compliance with laws and to risk management, management letters/ letters of internal control weaknesses issued by statutory / internal auditors, and records of related party transactions. The appointment, removal and terms of remuneration of the Chief Internal Auditor shall be subject to review by the Audit Committee.
8. Disclosure of Accounting Treatment The revised clause 49 requires that in case a company has followed a treatment different from that prescribed in an Accounting Standards, the management of such company shall justify why they believe such alternative treatment is more representative of the underlined business transactions. Management is also required to clearly explain the alternative accounting treatment in the footnote of financial statements. 9. Whistle Blower Policy Companies have been required to formulate an Internal Policy on access to Audit Committees. Personnel who observe any unethical or improper practice being perpetrated by the people in the organisation (not necessarily a violation of law) can approach the Audit Committee without necessarily informing their supervisors. Companies are also required to take measures to ensure that this right of access is communicated to all employees through means of internal circulars, etc. The employment and other personnel policies of the company should also contain provisions protecting whistle blowers from unfair termination and other unfair or prejudicial employment practices. Companies have also been required to affirm that it has not denied any personnel access to the Audit Committee of the company (in respect of matters involving alleged misconduct) and that it has provided protection to whistle blowers from unfair termination and other unfair or prejudicial employment practices. Such affirmation should form part of the Boards report on Corporate Governance that is required to be prepared and submitted together with the annual report. 10. Subsidiary Companies The revised clause 49 provides that the provisions relating to the composition of the Board of Directors of the holding company are also applicable to the composition of the Board of Directors of subsidiary companies. The clause further requires that at least one independent director on the Board of Directors of the holding company should be a director on the Board of Directors of the subsidiary company. The Audit Committee of the holding company has been empowered to review the financial statements, in particular the investments made by the subsidiary company and the minutes of the Board meetings of the subsidiary company to be placed for review at the Board meeting of the holding company. It is further required that the Boards report of the holding company should state that they have reviewed the affairs of the subsidiary company also. 11. Disclosure of contingent liabilities The revised clause 49 requires the management to provide a clear description in plain English of each material contingent liability and its risks, which shall be
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accompanied by the auditors clearly worded comments on the managements view. This section is required to be highlighted in the significant accounting policies and notes on accounts, as well as, in the auditors report, where necessary. 12. Additional Disclosures The revised Clause 49 of the Listing Agreement requires the following additional disclosures:
(A) Basis of related party transactions

A statement of all transactions with related parties shall be placed before the Audit Committee for formal approval/ratification. If any transaction is not on an arms length basis, management is required to justify the same to the Audit Committee.
(B) Board Disclosures Risk management

The Board members should be informed about the risk assessment and minimization procedures. These procedures shall be periodically reviewed to ensure that executive management controls risk through means of a properly defined framework. Management shall place a quarterly report certified by the compliance officer of the company, before the entire Board of Directors documenting the business risks faced by the company, measures to address and minimize such risks, and any limitations to the risk taking capacity of the corporation. This document shall be formally approved by the Board.
(C) Proceeds from Initial Public Offerings (IPOs)

When money is raised through an Initial Public Offering (IPO), it shall disclose to the Audit Committee, the uses / applications of funds by major category (capital expenditure, sales and marketing, working capital, etc), on a quarterly basis as a part of their quarterly declaration of financial results. Further, on an annual basis, the company shall prepare a statement of funds utilized for purposes other than those stated in the offer document/prospectus. This statement shall be certified by the independent auditors of the company. The Audit Committee shall make appropriate recommendations to the Board to take up steps in this matter. 13. Certification by CEO/CFO CEO (either the Executive Chairman or the Managing Director) and the CFO (WholeTime Finance Director or other person discharging this function) of the company has been put under an obligation to certify that, to the best of their knowledge and belief, they have reviewed the balance sheet and profit and loss account and all its schedules and notes on accounts, the cash flow statements as well as the Directors Report and these statements do not contain any materially untrue statement, omits any material fact or do they contain statements that might be misleading. Further they are required to certify that these statements together present a true and fair view of the company, and are in compliance with the existing accounting standards and/or applicable laws/regulations. The revised clause requires them to be responsible for establishing and maintaining
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SUPPLEMENT FOR SECURITIES LAWS & REGULATION OF FINANCIAL MARKETS internal controls, to evaluate the effectiveness of internal control systems of the company, and to disclose to the auditors and the Audit Committee, deficiencies in the design or operation of internal controls, if any. They are also required to disclose to the auditors as well as the Audit Committee, instances of significant fraud, if any, that involves management or employees having a significant role in the companys internal control systems, whether or not there were significant changes in internal control and / or of accounting policies during the year.
14. Report on Corporate Governance The companies have been required to submit a quarterly compliance report in the prescribed format to the stock exchanges within 15 days from the close of the quarter. The report has to be submitted either by the Compliance Officer or the Chief Executive Officer of the company after obtaining due approvals. 15. Company Secretary in Practice to Issue Certificate of Compliance This is a landmark amendment authorizing Company Secretaries in Practice among other professionals to issue certificate of compliance of clause 49. The revised clause requires the company to obtain a certificate from either the auditors or practicing company secretaries regarding compliance of conditions of corporate governance and annex the certificate with the directors report, which is sent annually to all the shareholders of the company. The same certificate is also required to be sent to the Stock Exchanges along with the annual returns filed by the company. 16. Additional disclosure in the Report on Corporate Governance The following additional items are required to be disclosed in the suggested list of Items to be included In the Report on Corporate Governance in the Annual Report of Companies. (i) Disclosure of accounting treatment, if different, from that prescribed in Accounting Standards with explanation. (ii) Whistle Blower policy and affirmation that no personnel has been denied access to the audit committee. 17. Additional Disclosures under Non-Mandatory Requirements The following additional disclosures are required to be made under the non-mandatory requirements :
(i) Audit qualifications Company may move towards a regime of unqualified financial statements. (ii) Training of Board Members Company shall train its Board members in the business model of the company as well as the risk profile of the business parameters of the company, their responsibilities as directors, and the best ways to discharge them. (iii) Mechanism for evaluating Non-Executive Board Members The performance evaluation of non-executive directors should be done by a peer group comprising the entire Board of Directors, excluding the director being evaluated; and Peer Group evaluation should be the mechanism to determine whether to extend / continue the terms of appointment of non-executive directors.
PART B COMPILATION OF OTHER RECENT CHANGES AND AMENDMENTS

In the present volatile capital market scenario, multifarious developments and changes are taking place in the legal framework. In order to acquaint the students with the important changes therein, and to enable them to update their study materials accordingly, a compilation of the relevant changes/amendments in the past two-three years are given hereunder :
SEBI (ISSUE OF SWEAT EQUITY) REGULATIONS, 2002*

In exercise of the powers conferred by section 30 of the Securities and Exchange Board of India Act, 1992 (15 of 1992) read with clause (d) of sub-section (1) of Section 79A of the Companies Act, 1956 (1 of 1956) as inserted by Companies (Amendment) Act, 1999 (1 of 1999), the Board, hereby, makes the following regulations, namely :CHAPTER I PRELIMINARY 1. Short title and commencement (a) These regulations shall be called the Securities and Exchange Board of India (Issue of Sweat Equity) Regulations, 2002. (b) These regulations shall come into force on the date of their publication in the Official Gazette. 2. Definitions (1) In these regulations, unless the context otherwise requires : (a) Act means the Securities and Exchange Board of India Act, 1992; (b) associate includes a person, who directly or indirectly by himself or in combination with relatives, exercises control over the company; or, (c) whose employee, officer or director is also a director, officer or employee of another company; (d) Board means the Board as defined in clause (a) of sub-section (1) of section 2 of the Act; (e) control shall include the right to appoint majority of the directors or to control the management or policy decisions exercisable by a person or persons acting individually or in concert, directly or indirectly, including by
* Issued by SEBI vide Notification No. SO 1031(E), dated 24-9-2002.
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SUPPLEMENT FOR SECURITIES LAWS & REGULATION OF FINANCIAL MARKETS virtue of their shareholding or management rights or shareholders or voting agreements or in any other manner; (f) company means a company as defined in the Companies Act, 1956; (g) director means, a director as defined in Sub-section (13) of Section 2 of the Companies Act, 1956 ; (h) employee means; (i) a permanent employee of the company working in India or abroad or (ii) a director of the company, whether a whole time director or not. (i) ESOS means an Employees Stock Option Scheme as defined in Securities and Exchange Board of India (Employees Stock Option Scheme and Employees Stock Purchase Scheme) Guidelines, 1999; (j) insider means an insider as defined in clause (e) of regulation 2 of Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 1992; (k) merchant banker means a merchant banker registered under section 12 of the Act; (l) promoter means promoter as defined in clause (h) of sub-regulation (1) of regulation 2 of the Securities and Exchange Board of India (Substantial Acquisition of shares and Takeovers) Regulations, 1997; (m) registrar means a registrar to an issue and includes a share transfer agent registered under section 12 of the Act; (n) securities means securities as defined in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956); (o) statutory auditor means an auditor appointed by a company under section 224 of the Companies Act 1956 (1 of 1956) ; (p) Recognised Stock Exchange means a stock exchange which has been granted recognition under section 4 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956); (q) sweat equity shares means sweat equity shares as defined in Explanation II of Sub-section (1) of Section 79A of the Companies Act, 1956; (r) Schedule means a schedule to these Regulations; (s) valuer means a Chartered Accountant or a merchant banker appointed to determine the value of the intellectual property rights or other value addition; (2) Words and expressions not defined in these regulations shall have the same meaning as have been assigned to them under the Act or the Securities Contracts (Regulation) Act, 1956 or the Companies Act, 1956, or any statutory modification or re-enactment thereof, as the case may be.
3. Applicability Nothing contained in these regulations shall apply to an unlisted company. Provided the unlisted company coming out with initial public offering and seeking listing of its securities on the stock exchange, pursuant to issue of sweat equity
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shares, shall comply with the Securities and Exchange Board of India (Disclosure and Investor Protection) Guidelines, 2000. CHAPTER II ISSUE OF SWEAT EQUITY BY A LISTED COMPANY 4. Sweat equity shares may be issued to employee promoter A company whose equity shares are listed on a recognised stock exchange may issue sweat equity shares in accordance with Section 79A of Companies Act, 1956 and these Regulations to its (a) Employees; (b) Directors. 5. Special Resolution (1) For the purposes of passing a special resolution under clause (a) of subsection (1) of section 79A of the Companies Act, 1956 the explanatory statement to be annexed to the notice for the general meeting pursuant to section 173 of the Companies Act, 1956 shall contain disclosures as specified in the Schedule. (2) The issue of sweat equity shares to promoters shall be subject to the requirements specified in Regulation 6 of these Regulations. 6. Issue of Sweat Equity (1) In case of issue of sweat equity shares to Shares to Promotors. promoters, the same shall also be approved by simple majority of the shareholders in General Meeting : Provided that for passing such resolution, voting through postal ballot as specified under Companies (Passing of the resolution by Postal Ballot) Rules 2001 shall also be adopted : Provided further that the promoters to whom such Sweat Equity Shares are proposed to be issued shall not participate in such resolution. (2) Each transaction of issue of Sweat Equity shall be voted by a separate resolution. (3) The resolution for issue of Sweat Equity shall be valid for a period of not more than twelve months from the date of passing of the resolution. (4) For the purposes of passing the resolution, the explanatory statement shall contain the disclosures as specified in the Schedule. 7. Pricing of Sweat Equity Shares (1) The price of sweat equity shares shall not be less than the higher of the following :(a) The average of the weekly high and low of the closing prices of the related equity shares during last six months preceding the relevant date; or (b) The average of the weekly high and low of the closing prices of the related equity shares during the two weeks preceding the relevant date.
Explanation :Relevant date for this purpose means the date which is thirty days prior to the date on which the meeting of the General Body of the shareholders is
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SUPPLEMENT FOR SECURITIES LAWS & REGULATION OF FINANCIAL MARKETS convened, in terms of clause (a) of sub-section (1) of section 79A of the Companies Act. 1. If the shares are listed on more than one stock exchange, but quoted only on one stock exchange on the given date, then the price on that stock exchange shall be considered. 2. If the share price is quoted on more than one stock exchange, then the stock exchange where there is highest trading volume during that date shall be considered. 3. If shares are not quoted on the given date, then the share price on the next trading day shall be considered.
8. Valuation of Intellectual Property (1) The valuation of the intellectual property rights or of the know-how provided or other value addition mentioned in Explanation II of sub-section (1) of Section 79A of the Companies Act, 1956 shall be carried out by a merchant banker. The merchant banker may consult such experts and valuers, as he may deem fit having regard to the nature of the industry and the nature of the property or other value addition. The merchant banker shall obtain a certificate from an independent Chartered Accountant that the valuation of the intellectual property or other value addition is in accordance with the relevant accounting standards. 9. Accounting Treatment (1) Where the sweat equity shares are issued for a non cash consideration, such non-cash consideration shall be treated in the following manner in the books of account of the company :(a) where the non-cash consideration takes the form of a depreciable or amortizable asset, it shall be carried to the balance sheet of the company in accordance with the relevant accounting standards; or (b) where clause (a) is not applicable, it shall be expensed as provided in the relevant accounting standards. 10. Placing of Auditors Certificate before Annual General Meeting In the general meeting subsequent to the issue of sweat equity, the Board of Directors shall place before the shareholders/certificate from the auditors of the company that the issue of sweat equity shares has been made in accordance with the Regulations and in accordance with the resolution passed by the company authorizing the issue of such Sweat Equity Shares. 11. Ceiling on Managerial Remuneration The amount of Sweat Equity shares issued shall be treated as part of managerial remuneration for the purposes of sections 198, 309, 310, 311 and 387 of the Companies Act, 1956 if the following conditions are fulfilled : (i) the Sweat Equity shares are issued to any director or manager; and, (ii) they are issued for non-cash consideration, which does not take the form of an
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asset which can be carried to the balance sheet of the company in accordance with the relevant accounting standards. 12. Lock-in of sweat equity shares (1) The Sweat Equity shares shall be locked in for a period of three years from the date of allotment. (2) The Securities and Exchange Board of India (Disclosure and Investor Protection) Guidelines, 2000, on public issue in terms of lock-in and computation of promoters contribution shall apply if a company makes a public issue after it has issued sweat equity. 13. Listing The Sweat Equity issued by a listed company shall be eligible for listing only if such issue are in accordance with these regulations. 14. Applicability of Takeover Any acquisition of Sweat Equity Shares shall be subject to the provision of Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997. CHAPTER III GENERAL OBLIGATIONS 15. Obligations of the Company (1) The company shall ensure that (a) The Explanatory Statement to the notice for general meeting shall contain certain disclosures as are specified under clause (b) of Sub-section (1) of Section 79A of the Companies Act, 1956 and sub-regulation (1) of Regulation 5. (b) Auditors certificate as required under Regulation 10 shall be placed in the general meeting of shareholders. (c) The company shall within seven days of the issue of sweat equity, issue or send statement to the recognized stock exchange, disclosing : (i) number of sweat equity shares; (ii) price at which the sweat equity shares are issued; (iii) total amount invested in sweat equity shares; (iv) details of the persons to whom sweat equity shares are issued; and, (v) the consequent changes in the capital structure and the shareholding pattern after and before the issue of sweat equity. 16. Action against intermediaries The Board may, on failure of the merchant banker to comply with the obligations under these regulations or failing to observe due diligence in respect of valuation of intellectual property or value addition, initiate action against the merchant banker in terms of Securities and Exchange Board of India (Merchant Bankers) Regulations, 1992.
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SUPPLEMENT FOR SECURITIES LAWS & REGULATION OF FINANCIAL MARKETS CHAPTER IV PENALTIES AND PROCEDURE
17. Power of the Board to order Inspection or Investigation (1) The Board may, suo-motu or upon information received by it, cause an inspection to be made of the books of account or other books and papers of any company or an investigation to be made in respect of the conduct and affairs of any person associated with the process of Sweat Equity, by appointing an officer of the Board *[not below the rank of Assistant General Manager for the purpose of conducting inspection and not below the rank of Division Chief for the purpose of conducting an investigation:] Provided that no such inspection or investigation shall be made except for the purposes specified in sub-regulation (2). (2) The purposes referred to in sub-regulation (1) are the following, namely:(a) to ascertain whether there are any circumstances which would render any person guilty of having contravened any of these regulations or any directions issued thereunder; (b) to investigate into any complaint of any contravention of the regulation, received from any investor, or any other person; (3) An order passed under the sub-regulation (1) shall be sufficient authority for the Inspecting or Investigating Officer to undertake the inspection or investigation, as the case may be and on production of an authenticated copy of the order, the person concerned shall be bound to carry out the duty imposed in Regulation 18. 18. Duty to produce records, etc. (1) It shall be the duty of every person in respect of whom an inspection or investigation has been ordered under regulation 17, to produce before the inspecting or the investigating Officer such book, accounts and other documents in his custody or control and furnish him with such statements and information as the said officer may require from the purposes of the inspection or investigation. (2) Without prejudice to the generality of the provisions of sub-regulation (1), such person shall (a) extend to the Inspecting or Investigating Officer reasonable facilities for examining any books, accounts and other documents in his custody or control (whether kept manually or in computer or in any other form) reasonably required for the purposes of the inspection or investigation; (b) provide such Inspecting or Investigating Officer copies of such books, accounts and records which, in opinion of the Officer, are relevant to the inspection or investigation or, as the case may be, allow him to take out computer printouts thereof; (c) provide such assistance and co-operation as may be required in connection with the inspection or investigation and furnish information relevant to such inspection or investigation as may be sought by such officer.
* Inserted by the SEBI (Issue of Sweat Equity Shares) (Amendment) Regulation, 2003, dated 27-8-2003.
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(3) The Inspecting or Investigating Officer shall for the purpose of inspection or investigation, have the full powers; (a) of summoning and enforcing the attendance of persons; (b) to examine orally and to record on oath the statement of the persons concerned, any director, partner, member or employee of such person. 19. Submission of Report to the Board (1) The Inspecting or Investigating Officer Board. shall, on completion of the inspection or Investigation after taking into account all relevant facts and circumstances, submit a report to the Board. (2) On the receipt of report under sub-regulation (1), the Board may initiate such action as it may be deemed fit to do in the interests of investors and the securities market. 20. Power of the Board to issue directions The Board may in the interests of the securities market and without prejudice to its right to initiate action including criminal prosecution under section 24 of the Act or Section 621 of Companies Act, 1956 give such directions as it deems fit including :(a) directing the person concerned not to further deal in securities in any particular manner; (b) directing the person concerned to sell or divest the sweat equity shares acquired in violation of the provisions of these Regulations or any other law or regulations; (c) prohibiting the persons concerned, from accessing the securities market; (d) directing the disgorgement of any ill-gotten gains or profit or avoidance of loss. (e) restraining the company from making a further offer for sweat equity. SCHEDULE [Under Regulation 6(4)] The explanatory statement to the notice and the resolution proposed to be passed in the general meeting for approving the issuance of sweat equity shall, inter alia, contain the following information : (a) The total number of shares to be issued as sweat equity. (b) The current market price of the shares of the company. (c) The value of the intellectual property rights or technical know how or other value addition to be received from the employee or director along with the valuation report / basis of valuation. (d) The names of the employees or directors or promoters to whom the sweat equity shares shall be issued and their relationship with the company. (e) The consideration to be paid for the sweat equity. (f) The price at which the sweat equity shares shall be issued. (g) Ceiling on managerial remuneration, if any, which will be affected by issuance of such sweat equity. (h) A statement to the effect that the company shall conform to the accounting policies as specified by the Board. (i) Diluted Earning Per Share pursuant to the issue of securities to be calculated in accordance with International Accounting Standards / standards specified by the Institute of Chartered Accountants of India.
SEBI (PROCEDURE FOR HOLDING ENQUIRY BY ENQUIRY OFFICER AND IMPOSING PENALTY) REGULATIONS, 2002*
In exercise of the powers conferred by section 30, read with sub-section (3) of section 12 and section 19, of the Securities and Exchange Board of India Act, 1992 (15 of 1992), the Board hereby makes the following regulations, namely:CHAPTER I PRELIMINARY 1. Short title and commencement (1) These regulations may be called the Securities and Exchange Board of India (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulations, 2002. (2) They shall come into force on the date of their publication in the Official Gazette. 2. Definitions (1) In these regulations, unless the context otherwise requires,(a) Act means the Securities and Exchange Board of India Act, 1992 (15 of 1992); (b) Board means the Securities and Exchange Board of India constituted under section 3 of the Act; (c) certificate means a certificate of registration granted to an intermediary under the relevant Regulations; (d) enquiry means an enquiry held under these regulations; (e) enquiry officer means an officer of the Board, not below the rank of a Division Chief, appointed by the Chairman or a member designated in this behalf to conduct enquiry and pass an order under these regulations; (f) intermediary means a person referred to in sub-section (1) or subsection (1A) of section 12 of the Act and includes an asset management company in relation to the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996 and a Collective Investment Management Company in relation to the Securities and Exchange Board of India (Collective Investment Schemes) Regulations, 1999; (g) presenting officer means a legal practitioner or an officer of the Board
Issued by SEBI vide Notification No. SO 1045(E), dated 27-9-2002.
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appointed by the Chairman or a member designated in this behalf to present a case on behalf of the Board before the enquiry officer; (h) relevant Regulations means any of the regulations referred to in regulation 4 made by the Board under section 30 of the Act for regulating the activities of intermediaries; (i) self-regulating organisation means an organisation of intermediaries operating in the securities market duly recognised by or registered with the Board and includes a Stock Exchange; (2) Words and expressions used and not defined in these regulations, but defined in the Act or in the rules or regulations made thereunder, shall have the meanings respectively assigned to them in the Act or rules or regulations made thereunder, as the case may be. CHAPTER II ENQUIRY PROCEEDINGS 3. Procedure for holding enquiry No order under these regulations shall be passed except after holding an enquiry by the enquiry officer. 4. Enquiry for contraventions of the regulations An enquiry for the purpose of passing an order under these regulations may be held for contravention of any of the provisions of (a) the Securities and Exchange Board of India (Stock-brokers and Sub-brokers) Regulations, 1992; (b) the Securities and Exchange Board of India (Insider Trading) Regulations, 1992; (c) the Securities and Exchange Board of India (Merchant Bankers) Regulations, 1992; (d) the Securities and Exchange Board of India (Portfolio Managers) Regulations, 1993; (e) the Securities and Exchange Board of India (Registrars to an Issue and Share Transfer Agents) Regulations, 1993; (f) the Securities and Exchange Board of India (Underwriters) Regulations, 1993; (g) the Securities and Exchange Board of India (Debenture Trustees) Regulations, 1993; (h) the Securities and Exchange Board of India (Bankers to an Issue) Regulations, 1994; (i) the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 1995; (j) the Securities and Exchange Board of India (Foreign Institutional Investors) Regulations,1995; (k) the Securities and Exchange Board of India (Custodian of Securities) Regulations, 1996; (l) the Securities and Exchange Board of India (Depositories and Participants) Regulations, 1996;
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SUPPLEMENT FOR SECURITIES LAWS & REGULATION OF FINANCIAL MARKETS (m) the Securities and Exchange Board of India (Venture Capital Funds) Regulations, 1996; (n) the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996; (o) the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997; (p) the Securities and Exchange Board of India (Buy-Back of Securities) Regulations, 1998; (q) the Securities and Exchange Board of India (Credit Rating Agencies) Regulations, 1999; (r) the Securities and Exchange Board of India (Collective Investment Schemes) Regulations, 1999; (s) the Securities and Exchange Board of India (Foreign Venture Capital Investors) Regulations, 2000.
5. Appointment of enquiry officer (1) Where it appears to the Chairman or a member designated in this behalf that an intermediary has contravened any of the provisions of a Regulation referred to in regulation 4, the Chairman or the member, as the case may be, may appoint an enquiry officer for the purpose of holding an enquiry into the matter: Provided that the Chairman or the member, as the case may be, may appoint more than one enquiry officers if the subject matter of enquiry contains technical or complicated questions of fact or law who will function as a bench to be presided by the senior amongst them. (2) No officer who has dealt with the matter or who is directly or indirectly interested, or has an interest, in that intermediary or who has conducted an investigation or inspection in respect of the alleged violation shall be appointed as an enquiry officer. 5A. Transfer of pending enquiry* (1) Any enquiry in respect of violation of any provisions of the Securities and Exchange Board of India (Stock Brokers and Sub-Brokers) Regulations, 1992 pending before any enquiry officer immediately before the date of commencement of the Securities and Exchange Board of India (Stock Brokers and Sub-Brokers) (Second Amendment) Regulations, 2003, being an enquriy in respect of a violation which can be adjudicated under Chapter VIA of the Act pursuant to the provisions of the Securities and Exchange Board of India (Stock Brokers and Sub-Brokers) (Second Amendment) Regulations, 2003, being an enquiry in respect of a violation which can be adjudicated under Chapter VIA of the act pursuant to the provisions of the Securities and Exchange Board of India (Stock Brokers and Sub-Brokers) (Second Amendment) Regulations, 2003 may be transferred by the Chairman or the member by an order in writing to an adjudicating officer appointed under section 15-I of the Act.
Inserted by SEBI (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) (Second Amendment) Regulations, 2003, dated 30.12.2003.
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(2) Where any matter has been transferred from an enquiry officer to an adjudicating officer under sub-regulation (1) (a) the enquiry officer shall, as soon as may be, after such transfer forward the records of such enquiry proceedings to the adjudicating officer; and (b) the adjudicating officer may, on receipt of such records, proceed to deal with the matter, so far as may be, in the same manner as in the case of adjudicating proceedigns under Chapter VIA read with the Securities and Exchange Board of India (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995." *6. Issuance of notice (1) Where it is proposed to hold an enquiry against an intermediary under these regulations, the enquiry officer shall issue, or cause to be issued, to the intermediary a notice which shall state the contravention of the relevant Regulations alleged to have been committed by the intermediary. (2) There shall be annexed to the notice issued under sub-regulation (1) copies of documents relied on by the Board and extracts of relevant portions of documents containing the findings arrived at in any investigation or inspection held by the Board in respect of the alleged contravention. (3) The notice under sub-regulation (1) shall require the intermediary (i) to submit within a period to be specified in the notice, ordinarily not exceeding twenty-one days, a written statement, if any to the enquiry officer appointed under sub-regulation (1) of regulation 5; and (ii) to specify whether he desires to be heard in person before the enquiry officer. 7. Manner of service of notice The notice referred to in regulation 6 shall be served in the manner specified in regulation 22. 8. Reply by intermediary The intermediary to whom the notice under regulation 6 has been issued shall submit *[to the enquiry officer] his written statement within the period specified in the notice along with documentary evidence, if any, in support thereof and shall also state whether he desires to be heard in person: Provided that the enquiry officer may, for sufficient reasons, extend the period to submit written statement. 9. Notice of hearing The enquiry officer shall issue, or caused to be issued, notice in the manner specified under regulation 22 stating the date and the place of hearing to the intermediary who may appear before the enquiry officer for hearing on the date so notified. 10. Ex parte proceedings If any intermediary fails or refuses to appear before the enquiry officer, as required under regulation 9 or does not reply to the notice as required under regulation 8, the
* Inserted by the SEBI (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) (Amendment) Regulations 2003, dated 27-11-2003.
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enquiry officer may proceed ex parte with the enquiry after recording the reasons and pass appropriate order on merits based on the material facts before him. 11. Representation before enquiry officer The intermediary may appear before the enquiry officer in person or through any person duly authorised by him in this behalf: Provided that no legal practitioner shall be permitted to represent the intermediary at the enquiry except where a legal practitioner has been appointed by the Chairman or a member designated in this behalf as a presenting officer under regulation 12. 12. Presenting officer (1) The Chairman or a member designated in this behalf may appoint a presenting officer in an enquiry. (2) The enquiry officer, if he considers it necessary, may advise the Board to appoint a presenting officer for the purpose of the enquiry and the Chairman or a member designated in this behalf on receipt of such advice shall appoint a presenting officer. 13. Imposition of penalty (1) The enquiry officer shall, after considering the written statement and the oral submissions, if any, of the intermediary and the provisions of the relevant Regulations, submit a report to the Chairman or a member designated in this behalf and recommend for the imposition of any of the following penalties by the Chairman or the member, as the case may be, with the justification for the imposition thereof :(a) Minor penalties (i) warning or censure; (ii) prohibiting the intermediary to take up any new assignment or mandate or launch a new scheme for a period upto six months; (iii) debarring a partner or a whole time director of the intermediary from carrying out the activities as intermediary in the intermediary firm or company and other capital market related institutions for a period upto six months ; (iv) suspension of certificate of registration for a period upto three months; (v) debarring a branch or an office of the intermediary from carrying out the activities for a period upto six months. (b) Major penalties (i) cancellation of certificate of registration; (ii) suspension of certificate of registration for period exceeding three months; (iii) taking of action under sub-clause (ii), (iii) or (v) of clause (a) for a period exceeding six months. (2) On receipt of the report from the enquiry officer, the Chairman or the member, as the case may be, shall consider the same and issue a show-cause notice to the intermediary as to why the action as it considers appropriate should not be taken.
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(3) The intermediary shall within fifteen days of the date of the receipt of the showcause notice send a reply to the Chairman or the member, as the case may be. (4) The Chairman or the member, as the case may be, after considering the reply to the show-cause notice, if received, shall as soon as possible pass such order as it deems fit. (5) If the enquiry officer under sub-regulation (1) has recommended or imposing of a minor penalty and the Chairman or the member, as the case may be, proposes imposing of a major penalty, he shall give a notice to the intermediary to make written submission against the proposed action within fifteen days after the receipt of the notice and the Chairman or the member after taking into consideration the written submissions, if any, shall pass such orders as deemed appropriate. (6) The Board or the member shall impose major penalties only in the following circumstances, namely:(a) the intermediary or any of its whole-time directors or partners or its proprietor has been found guilty of price or market manipulation of any scrip or index or assisting in such manipulation or of insider trading; (b) the intermediary is guilty of violation of conditions of registration; (c) the intermediary or any of its whole time directors or partners or its proprietor is found to be not a fit or proper person; (d) failure to obey directions of the Board passed under section 11 or section 11B of the Act or failure to obey order of an adjudicating officer imposing monetary penalty passed under section 15I of the Act by the intermediary; or (e) repeated defaults by the intermediary for which action can be taken against him under clause (a) of sub-regulation (1). (7) Every order passed under sub-regulation (4) shall be dated and signed by the Chairman or the member, as the case may be. 14. Intimation of the order (1) A copy of the order passed under sub-regulation (4) of regulation 13 shall be sent to the intermediary. (2) If the intermediary is a member of any self-regulating organisation, a copy of the order shall also be sent to such organisation. CHAPTER III SUMMARY PROCEDURE 15. Situations when summary procedure to be followed It shall not be necessary to hold an enquiry under Chapter II in relation to an intermediary where (a) such intermediary has been declared insolvent or is wound up; (b) such intermediary fails to pay the registration, renewal or annual fees to the Board as per the provisions of the relevant Regulations;
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SUPPLEMENT FOR SECURITIES LAWS & REGULATION OF FINANCIAL MARKETS (c) such intermediary, being a Stock-broker, ceases to be a member of a recognised stock exchange or has been declared a defaulter in relation to the transactions at such exchange; (d) such intermediary fails to obey an order of any adjudication officer imposing a penalty under section 15I of the Act; (e) such intermediary fails to submit documents or records to the Board within the time stipulated by the Board; (f) such intermediary fails to issue contract notes or to enter into agreement as required under the provisions of the relevant Regulations; (g) such intermediary does not satisfy the capital adequacy norms as specified in the relevant Regulations; (h) its proprietor or any of its partners or whole-time directors is convicted by a court of competent jurisdiction of an offence involving moral turpitude; (i) such intermediary surrenders its certificate of registration to the Board; (j) such intermediary admits to have violated the provisions of the relevant Regulations; (k) in any other situation where the facts leading to the violation of the provisions of the relevant Regulations are undisputed: Provided that no action shall be taken against an intermediary without giving an opportunity of making representation to such intermediary.
16. Procedure to be followed under this chapter (1) The Chairman or a member designated in this behalf shall appoint an officer of the Board, not below the rank of Division Chief, for passing appropriate orders in respect of matters specified in regulation 15. (2) The officer shall issue to the intermediary, against whom the proceedings are being held, a notice requiring the intermediary to make a written submission in reply to the notice within such time, ordinarily not exceeding fifteen days after the receipt of the notice, as may be specified in the notice. (3) If the intermediary fails to make a written submission to the notice within the period specified in the notice, the officer shall pass such orders as he considers appropriate in the circumstances on the merits and in the light of the material on record and shall submit a report to the Chairman or the member, as the case may be, and may recommend taking of any action under sub-regulation (1) of regulation 13 as he considers appropriate in the circumstance of the case and shall give reasons for taking such action. (4) If the intermediary makes submission within the said period, the officer shall, after considering the submission so made, submit a report to the Chairman or the member, as the case may be, and may recommend taking of any action under sub-regulation (1) of regulation 13 as he considers appropriate in the circumstances of the case and shall give reasons for taking such action.
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(5) The Chairman or the member, as the case may be, after receipt of recommendations from the officer under sub-regulation *[(3) or] (4), shall pass such orders as he may deem appropriate. 17. Publication of order The Board shall issue a press release in respect of an order under these regulations in at least two newspapers of which at least one shall have nationwide circulation and shall also put the order on the website of the Board. CHAPTER IV MISCELLANEOUS AND CONSEQUENTIAL PROVISIONS 18. Removal of doubts For the removal of doubts, it is hereby declared that the provisions of these regulations shall be without prejudice to any other action the Board may take under the Act or the respective regulations. 19. Effect of debarment and cancellation order (1) On and from the date of debarment or suspension and suspension of the certificate, the intermediary shall not undertake any new assignment or contract or launch any new scheme and shall cease to carry on any activity as an intermediary during the period of such debarment or suspension and shall be subject to such other directions of the Board including directions relating to any records, documents or securities or money of the investors that may be in the custody or the control of such intermediary. (2) On and from the date of cancellation of the certificate, the intermediary shall, with immediate effect, cease to carry on any activity as an intermediary and shall be subject to the directions of the Board with regard to the transfer of any records, documents or securities or money of the investors that may be in the custody or control of such intermediary. 20. Appeal to Securities Appellate Tribunal An intermediary aggrieved by an order under these regulations may prefer an appeal to the Securities Appellate Tribunal against such order in accordance with section 15T of the Act. 21. Amendment of relevant Regulations The Regulations specified in clauses (a) to (s) of regulation 4 shall stand amended in the manner specified in the Schedule. 22. Service of notice (1) A notice issued under these regulations may be served on the intermediary by sending it to such intermediary at his registered office address or at principal office address as available on the records of the Board by registered post acknowledgement due or by speed post or by such courier service as may be approved by the Board.
Inserted by the SEBI (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) (Amendment) Regulation dated 27.11.2003.
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SUPPLEMENT FOR SECURITIES LAWS & REGULATION OF FINANCIAL MARKETS (2) If a notice cannot be served in the manner referred to in sub-regulation (1), the same shall be served by affixing on the door or some other conspicuous part of the premises of the registered office or the principal office of the intermediary. (3) In case of a stock broker, the notice shall be served through the concerned stock exchange.
23. Saving of actions (1) Notwithstanding amendment of the regulations as specified in regulation 21, anything done or any action taken including any proceeding for inspections or investigation or enquiry commenced or any notice issued under the said regulations before the commencement of these regulations shall be deemed to have been done or taken under the corresponding provisions of these regulations. (2) In particular and without prejudice to the generality of the provisions of subregulation (1), (i) an enquiry proceeding initiated by the Board under the relevant Regulations and pending before the Board before the commencement of these regulations shall be conducted and completed under the Relevant regulations as if those are not amended as specified in regulation 21; (ii) any order appointing an enquiry officer under the relevant Regulations and pending before such enquiry officer immediately before the commencement of these regulations shall be deemed to have been ordered under the corresponding provisions of these regulations. THE SCHEDULE
[See regulation 21]

PART I Amendment to the Securities and Exchange Board of India (Stock-Brokers and Sub-Brokers) Regulations, 1992 1. In regulation 2, clause (aaa) shall be omitted. 2. For regulation 23, the following regulation shall be substituted, namely :-
"23. Action on inspection or investigation report

The Board or the Chairman shall after consideration of inspection or investigation report take such action as the Board or Chairman may deem fit and appropriate including action under the Securities and Exchange Board of India (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulations, 2002. 3. For regulation 25, the following regulation shall be substituted, namely:-
"25. Liability for action in case of default

A stock-broker who (a) fails to comply with any conditions subject to which registration has been granted; (b) contravenes any of the provisions of the Act, rules or regulations; (c) contravenes the provisions of the Securities Contracts (Regulation) Act or the rules made thereunder;
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(d) contravenes the provisions of the Depositories Act, 1996 or the rules made thereunder; (e) contravenes the rules, regulations or bye-laws of the stock exchange, shall be dealt with in the manner provided under the Securities and Exchange Board of India (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulations, 2002. 4. Regulations 26 to 32 shall be omitted. PART II Amendment to the Securities and Exchange Board of India (Portfolio Managers) Regulation, 1992 1. In regulation 2, clause (a) shall be omitted. 2. For regulation 33, the following regulation shall be substituted, namely;-

The Board or the Chairman shall after consideration of inspection or investigation report take such action as the Board or Chairman may deem fit and appropriate including action under the Securities and Exchange Board of India (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulations, 2002. 3. For regulation 35, the following regulation shall substituted, namely:-

A merchant banker who (a) fails to comply with any conditions subject to which certificate has been granted; (b) contravenes any of the provisions of the Act, rules or regulations, shall be dealt with in the manner provided under the Securities and Exchange Board of India (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulations, 2002. 4. Regulations 36 to 43 shall be omitted. PART III Amendment to the Securities and Exchange Board of India (Portfolio Managers) Regulations, 1993 1. In regulation 2, clause (a) shall be omitted. 2. For regulation 28, the following regulation shall be substituted, namely :-

The Board or the Chairman shall after consideration of inspection or investigation report take such action as the Board or Chairman may deem fit and appropriate including action under the Securities and Exchange Board of India (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulations, 2002. 3. For regulation 30, the following regulation shall be substituted, namely :-
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SUPPLEMENT FOR SECURITIES LAWS & REGULATION OF FINANCIAL MARKETS A portfolio manager who (a) fails to comply with any conditions subject to which certificate has been granted; (b) contravenes any of the provisions of the Act, rules or regulations, shall be dealt with in the manner provided under the Securities and Exchange Board of India (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulations, 2002.
4. Regulations 31 to 38 shall be omitted. PART IV Amendment to the Securities and Exchange Board of India (Registrars to an Issue and Share Transfer Agents) Regulations, 1993 1. In regulation 2, clause (b) shall be omitted. 2. For regulation 20, the following regulation shall be substituted, namely:-


A registrar to an issue or share transfer agent who (a) fails to comply with any conditions subject to which registration has been granted; (b) contravenes any of the provisions of the Act, rules or regulations; (c) contravens the provisions of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) or the rules made thereunder; (d) contravenes the provisions of the Depositories Act, 1996 or the rules made thereunder; (e) contravenes the rules, regulations or bye-laws of the stock exchange, shall be dealt with in the manner provided under the Securities and Exchange Board of India (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalties) Regulations, 2002. 4. Regulations 23 to 29 shall be omitted. PART V Amendment to the Securities and Exchange Board of India (Underwriters) Regulations, 1993 1. In regulation 2, clause (a) shall be omitted. 2. For regulation 23, the following regulation shall be substituted, namely;-
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An underwriter or a stock broker or a merchant banker entitled to carry on business of underwriting who (a) fails to comply with any conditions subject to which certificate has been granted; (b) contravenes any of the provisions of the Act, rules or regulations, shall be dealt with in the manner provided under the Securities and Exchange Board of India (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulations, 2002. 4. Regulations 26 to 32 shall be omitted. PART VI Amendment to the Securities and Exchange Board of India (Debenture Trustees) Regulations, 1993 1. In regulation 2, clause (b) shall be omitted. 2. For regulation 23, the following regulation shall be substituted, namely:-


A debenture trustee who(a) fails to comply with any conditions subject to which certificate has been granted; (b) contravenes any of the provisions of the Act, rules or regulations; (c) contravenes the provisions of the Companies Act or the rules made thereunder, shall be dealt with in the manner provided under the Securities and Exchange Board of India (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulations, 2002. 4. Regulations 26 to 32 shall be omitted. PART VII Amendment to the Securities and Exchange Board of India (Bankers to an Issue) Regulations, 1994 1. In regulation 2, clause (a) shall be omitted.
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2. For regulation 22, the following regulation shall be substituted, namely;-


A banker to an issue who(a) fails to comply with any conditions subject to which certificate has been granted; (b) contravenes any of the provisions of the Act, rules or regulations, shall be dealt with in the manner provided under the Securities and Exchange Board of India (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulations, 2002. 4. Regulations 24 to 31 shall be omitted. PART VIII Amendment to the Securities and Exchange Board of India (Foreign Institutional Investors) Regulations, 1995 1. In regulation 2, clause (e) shall be omitted. 2. For regulation 21, the following regulation shall be substituted, namely:-

A Foreign Institutional Investor who (a) fails to comply with any condition subject to which certificate has been granted; (b) contravenes any of the provisions of the Act, rules or regulations shall be dealt with in the manner provided under the Securities and Exchange Board of India (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulations, 2002. 3. Regulations 22 to 29 shall be omitted. PART IX Amendment to the Securities and Exchange Board of India (Custodian of Securities) Regulations, 1996 1. In regulation 2, clause (g) shall be omitted. 2. For regulation 25, the following regulation shall be substituted, namely:-

The Board or the Chairman shall after consideration of inspection or investigation report take such action as the Board or Chairman may deem fit and appropriate including action under the Securities and Exchange Board of India (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulations, 2002.
SUPPLEMENT FOR SECURITIES LAWS & REGULATION OF FINANCIAL MARKETS 3. For regulation 26, the following regulation shall be substituted, namely:-
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A custodian of securities who (a) contravenes any of the provisions of the Act, the rules framed thereunder or these regulations; (b) fails to furnish any information relating to his activity as custodian of securities as required by the Board; (c) furnishes to the Board information which is false and misleading in any material particular; (d) does not submit periodic returns or reports as required by the Board; (e) does not co-operate in any enquiry or inspection conducted by the Board; (f) fails to update its systems and procedures as recommended by the Board; (g) fails to resolve the complaints of clients or fails to give a satisfactory reply to the Board in this behalf; (h) is guilty of misconduct or makes a breach of the Code of Conduct specified in the Third Schedule; (i) fails to pay annual fees, shall be dealt with in the manner provided under the Securities and Exchange Board of India (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulations, 2002. 4. Regulations 27 to 32 shall be omitted. PART X Amendment to the Securities and Exchange Board of India (Depositories and Participants) Regulations, 1996 1. In regulation 2, clause (c) shall be omitted. 2. For regulation 63, the following regulation shall be substituted, namely:-


A depository or a participant who (a) contravenes any of the provisions of the Act, the Depositories Act, the bye-laws, agreements and these regulations; (b) fails to furnish any information relating to its activity as a depository or participant as required under these regulations; (c) does not furnish the information called for by the Board under clause (a) of subsection (1) of section 18 of the Depositories Act or furnishes information which is false or misleading in any material particular;
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SUPPLEMENT FOR SECURITIES LAWS & REGULATION OF FINANCIAL MARKETS (d) does not co-operate in any inspection or investigation or enquiry conducted by the Board; (e) fails to comply with any direction of the Board issued under section 18 of the Depositories Act; (f) fails to pay the annual fee referred to in regulation 8, shall be dealt with in the manner provided under the Securities and Exchange Board of India (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulations, 2002.
4. Regulations 65 to 69 shall be omitted. PART XI Amendment to the Securities and Exchange Board of India (Venture Capital Funds) Regulations, 1996 1. In regulation 2, clause (e) shall be omitted. 2. Sub regulations (1) and (2) of regulation 29 shall be omitted and sub- regulation (3) of that regulation shall be re-numbered as regulation 29. 3. For regulation 30, the following regulation shall be substituted, namely:-

Without prejudice to the issue of directions or measure under regulation 29, a venture capital fund which (a) contravenes any of the provisions of the Act or these regulations; (b) fails to furnish any information relating to its activity as a venture capital fund as required by the Board; (c) furnishes to the Board information which is false or misleading in any material particular; (d) does not submit periodic returns or reports as required by the Board; (e) does not co-operate in any enquiry, inspection or investigation conducted by the Board; (f) fails to resolve the complaints of investors or fails to give a satisfactory reply to the Board in this behalf, shall be dealt with in the manner provided in the Securities and Exchange Board of India (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulation, 2002. 4. Regulations 31 to 38 shall be omitted. PART XII Amendment to the Securities and Exchange Board of India (Mutual Fund) Regulations, 1996 1. In regulation 2, clause (k) shall be omitted. 2. For regulation 65, the following regulation shall be substituted, namely :-
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A mutual fund which (a) contravenes any of the provisions of the Act and these regulations; (b) fails to furnish any information or furnishes wrong information relating to its activity as a mutual fund as required under these regulations; (c) fails to submit periodical returns as required under these regulations; (d) does not co-operate in any inquiry or inspection conducted by the Board; (e) fails to comply with any directions of the Board issued under the provisions of the Act or the regulations; (f) fails to resolve the complaints of the investors or fails to give a satisfactory reply to the Board in this behalf; (g) indulges in unfair trade practices in securities:
Explanation For the purposes of this clause unfair trade practices has the same meaning as in the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 1995;
(h) is guilty of misconduct or improper or unbusinesslike or unprofessional conduct which is not in accordance with the Code of Conduct specified in the Fifth Schedule; (i) asset management company fails to maintain the net worth in accordance with the provisions of regulation 21; (j) fails to pay any fees; (k) violates the conditions of registration; (l) mutual fund, asset management company or trustees of that mutual fund does not carry out its obligations as specified in these regulations, shall be dealt with in the manner provided under the Securities and Exchange Board of India (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulations, 2002. 4. Regulations 69 to 74 shall be omitted. PART XIII Amendment to the Securities and Exchange Board of India (Credit Rating Agencies) Regulations, 1999 1. In regulation 2, clause (j) shall be omitted. 2. For regulation 33, the following regulation shall be substituted, namely :-
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SUPPLEMENT FOR SECURITIES LAWS & REGULATION OF FINANCIAL MARKETS The Board or the Chairman shall after consideration of inspection or investigation report take such action as the Board or Chairman may deem fit and appropriate including action under the Securities and Exchange Board of India (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulations, 2002.
3. For regulation 34, the following regulation shall be substituted, namely:-

A credit rating agency which (a) fails to comply with any condition subject to which a certificate has been granted; (b) contravenes any of the provisions of the Act or these regulations or any other regulations made under the Act, shall be dealt with in the manner provided under the Securities and Exchange Board of India (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulations, 2002. 4. Regulations 35 to 42 shall be omitted. PART XIV Amendment to the Securities and Exchange Board of India (Collective Investment Schemes) Regulations, 1999 1. For regulation 56, the following regulation shall be substituted, namely:-

The Board or the Chairman shall after consideration of inspection or investigation report take such action as the Board or Chairman may deem fit and appropriate including action under the Securities and Exchange Board of India (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulations, 2002. 2. Regulation 58 shall be omitted. 3. For regulation 59, the following regulation shall be substituted, namely:-

In case a Collective Investment Management Company (a) contravenes any provision of the Act or these regulations; (b) for the purposes of these regulations furnishes any information which is false or misleading or suppresses any material information; (c) does not co-operate in any inspection, investigation or inquiry conducted by the Board under the Act or these regulations; (d) fails to comply with any directions issued by the Board under the Act or the regulations; (e) fails to resolve the complaints of the investors or fails to furnish to the Board a satisfactory reply in this behalf when called upon to do so by the Board; (f) commits a breach of any provision of the Code of Conduct specified in the Third Schedule; (g) fails to pay the fees specified in the Second Schedule;
SUPPLEMENT FOR SECURITIES LAWS & REGULATION OF FINANCIAL MARKETS (h) commits a breach of the conditions of registration; or
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(i) fails to make an application for listing or fails to list units of a scheme in a recognized stock exchange, shall be dealt with in the manner provided in the Securities and Exchange Board of India (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulations, 2002. 4. Regulations 60 to 64 shall be omitted. PART XV Amendment to the Securities and Exchange Board of India (Foreign Venture Capital Funds) Regulations, 2000 1. In regulation 2, clause (e) shall be omitted. 2. In Regulation 23, for the word the regulation 24, the words, the Securities and Exchange Board of India (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulations, 2002 shall be substituted. 3. Regulations 24 to 27 shall be omitted.
SEBI (CENTRAL LISTING AUTHORITY) REGULATIONS, 2003*

In exercise of the powers conferred by sections 11 and 11A read with sections 19 and 30 of the Securities and Exchange Board of India Act, 1992 (15 of 1992), the Board hereby makes the following regulations, namely: CHAPTER I PRELIMINARY 1. Short Title and Commencement (1) These regulations shall be called Securities and Exchange Board of India (Central Listing Authority) Regulations, 2003. (2) These regulations shall come into force on such date as may be specified by the Board : Provided that different dates may be specified for different provisions of these regulations and in application to different kinds of securities or issues. (3) These regulations shall apply to the issue of all classes of securities that are proposed to be listed. 2. Definitions (1) In these regulations, unless the context otherwise requires: (a) 'Act means the Securities and Exchange Board of India Act, 1992; (b) applicant means any company or other body corporate, mutual fund or collective investment scheme, acting by itself or through a merchant banker, who proposes to make an application to the Authority for a letter precedent to listing; (c) 'Authority means the Central Listing Authority established under regulation 3 of these regulations; (d) Board means the Securities and Exchange Board of India established under section 3 of the Act; (e) Chief Executive Officer means a person, including a Member, appointed as such by the/Authority with the previous approval of the Board; (f) exchange means a stock exchange which has been granted recognition under Section 4 of the Securities Contracts (Regulation) Act, 1956; (g) letter precedent to listing means a letter issued by the Authority under
* Issued by SEBI vide Notification No. SO 954(E) dated 21-8-2003.
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regulation 12, permitting the applicant to make a listing application to any exchange, including for relisting and listing of an already listed security at an exchange other than the exchange where it is presently listed; (h) listing agreement means the agreement that is entered into between an exchange and an applicant under which the securities are listed and dealt with in the concerned exchange; (i) listing application means an application made by an applicant, under applicable laws, to an exchange for permission for its securities to be listed and dealt with in the exchange; Explanation : An application to any exchange for obtaining any prior inprinciple approval or for obtaining the comments or observations of the exchange on such application shall not be deemed to be a listing application for the purposes of these regulations; (j) listing conditions means the conditions to be fulfilled by a company or other body corporate, mutual fund or collective investment scheme for the purpose of getting its securities listed on an exchange; and (k) securities shall have the meaning assigned to it under Section 2(h) of the Securities Contracts (Regulation) Act, 1956. (2) (a) Words and expressions used and not defined in these regulations shall have the meanings, if any, respectively assigned to them under the Act. (b) Words and expressions used and not defined either in these regulations or the Act, shall have the meanings, if any, respectively assigned to them under the Securities Contracts (Regulation) Act, 1956 or any statutory modification or re-enactment thereof. (c) Words and expressions used and not defined either in these regulations, or in the Act or in the Securities Contracts (Regulation) Act, 1956 shall have the meanings, if any, respectively assigned to them under the Companies Act, 1956, or any statutory modification or re-enactment thereof. CHAPTER II CENTRAL LISTING AUTHORITY 3. Establishment of the Central Listing Authority (1) With effect from such date as may be specified by the Board in this regard, there shall be established for the purposes of these regulations, an authority to be called the Central Listing Authority and with effect from such date, the Board shall be deemed to have delegated its functions and powers, as are specified herein, to the Authority. (2) The head office of the Authority shall be located in Mumbai: Provided that the Authority may, with prior approval of the Board, establish such branch or regional offices as may be necessary. 4. Composition of the Authority (1) The Authority shall, at any time, be composed of not more than eleven Members comprising of : (a) a President;
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SUPPLEMENT FOR SECURITIES LAWS & REGULATION OF FINANCIAL MARKETS (b) a Vice President; and, (c) not more than nine other Members.
(2) The President, Vice President and the Members shall be appointed by the Board from amongst eminent persons of demonstrated integrity and outstanding technical and professional ability, and drawn from the judiciary, the legal profession, the academia, investor associations, exchanges, and experts in securities market or finance;
*
[Provided that at least three Members shall be representatives of exchanges, depositories, clearing corporation or other institutions relating with the securities market]. (3) The Chief Executive Officer of the Authority shall be the ex-officio MemberSecretary of the Authority. (4) The President, Vice President and each Member shall be appointed for a term of three years. (5) A Member shall be eligible for reappointment: Provided that a Member shall not be eligible for re-appointment as a Member or as a President or as a Vice President, if he has already served for two terms. (6) The remuneration and the terms and conditions of appointment of the Members, including the President, shall be such as may be specified by the Board: Provided that the Members who are representatives of exchanges shall not draw any remuneration from the Authority. (7) The President may, by notice in writing under his hand addressed to the Board, resign his office and the Vice President or a Member may, by notice in writing under his hand addressed to the President, resign his office. (8) The Board may, for reasonable cause, remove the President, Vice President or a Member: *Provided that no Member, including the President, Vice President and the Chief Executive Officer, shall be removed from office unless the reasons for such removal are communicated to him and an opportunity of being heard by the Board has been provided: Provided further that no Member removed under this sub-regulation, shall be entitled to receive any compensation for loss of office. 5. Secretariat (1) The Authority may have a secretariat to assist it in the discharge of its functions. (2) The Board may, if requested by the Authority, make available or cause to be made available to the Authority the premises, infrastructure and amenities, commensurate with its functions and responsibilities. (3) The Authority shall, in consultation with the Board, appoint a Chief Executive Officer of the Authority who shall perform such functions as may be specified by the Authority.
* Substituted by SEBI (Central Listing Authority) (Amendment) Regulations, 2003, dated 14-10-2003.
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(4) The Authority may appoint such officers and staff, on such remuneration and terms, as it considers necessary for the efficient discharge of its functions under these regulations. (5) Notwithstanding the above, the Authority may request the Board to depute, from time to time, adequate number of personnel to the secretariat. (6) The Authority may engage, and pay for, external professional services to assist it in the efficient discharge of its functions under these regulations. 6. Meetings of the Authority (1) The Authority may meet from time to time for the despatch of business, adjourn, re-schedule and otherwise regulate its meetings, as it thinks fit. (2) The President may, either on his own volition or upon request by a Member, summon a meeting of the Authority. (3) The President, and in his absence the Vice President shall chair all meetings and in the absence of both of them in any meeting, the Members present shall appoint one of them to chair the meeting. (4) The Chief Executive Officer being the ex officio Member-Secretary shall be responsible for all administrative functions in relation to the meetings. (5) The meetings of the Authority shall be held at its office, provided that the Authority may meet at any other place and conduct a meeting without the Members being physically present in one location, through audio or video conferencing. (6) The quorum for any meeting of the Authority shall be four Members: Provided however, that in a meeting for considering an application for a letter precedent to listing, Members who are representatives of exchanges shall not be considered for the purpose of quorum. (7) The continuing Members may act notwithstanding any vacancies in the Authority: Provided that if the number of Members is reduced below the quorum fixed by these regulations for a meeting of the Authority, the continuing Members or Member may act and they shall constitute the quorum. (8) Questions arising at any meeting of the Authority shall be decided by a majority vote of the Members present and voting in such meeting: Provided that in case of an equality of votes, the President, or in his absence the person presiding, shall have a second or casting vote. (9) Decisions of the Authority may also be taken by circulation, provided the resolution has been circulated in draft, together with the necessary papers, if any, to all the Members in advance. (10) The Authority may delegate any of its functions and powers to any committee consisting of such Members as it may determine. (11) Any committee so formed shall in the exercise of its powers or in the performance of its functions so delegated, conform to such procedures or conditions that may be specified by the Authority. (12) Questions arising at any meeting of a committee shall be determined by a
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SUPPLEMENT FOR SECURITIES LAWS & REGULATION OF FINANCIAL MARKETS majority of the Members present and in case of an equality of votes, the matter shall be referred to the Authority for its consideration and decision thereon.
(13) No proceedings before, or order passed by the Authority, shall be questioned or shall be deemed to be invalid on the grounds merely of the existence of any vacancy or defect in the constitution of the Authority. 7. Fund (1) The Board shall constitute a Fund to be called the Central Listing Authority General Fund and there shall be credited thereto: (a) any application fees levied and received by the Board under subregulation (4) of regulation 10; and (b) any other sum as may be decided upon by the Board. (2) The above Fund shall be managed by the Authority and shall be applied for meeting: (a) the remuneration, if any, of the President and other Members of the Authority; (b) the expenses (whether capital or revenue in nature) of the Authority for the discharge of its functions and exercise of powers under these regulations including salary and allowances payable to the Chief Executive Officer, other officers and staff of the Authority; and, (c) the professional fees of external professionals, agencies, consultants and/ or advisers and/or advisory committees engaged by the Authority. CHAPTER III FUNCTIONS OF THE AUTHORITY AND LETTERS PRECEDENT TO LISTING 8. Functions of the Authority (1) The Authority shall perform the following functions : (a) to receive and process applications for letter precedent to listing from applicants and issue, if it deems fit, a letter precedent to listing to any such applicant; (b) to make recommendations to the Board on issues pertaining to the protection of the interest of the investors in securities and development and regulation of the securities market, including the listing agreements, listing conditions and disclosures to be made in offer documents; and, (c) to undertake any other functions as may be delegated to it by the Board from time to time. 9. Letter Precedent to Listing (1) No applicant, unless it has obtained a letter precedent to listing from the Authority, shall : (a) make an issue of securities which is proposed to be listed on an exchange, and/or (b) make a listing application for listing of its securities to any exchange. (2) No applicant shall make an issue of any class of securities unless it has obtained
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an in-principle approval from the exchange(s) where it proposes to list such securities. (3) No exchange shall consider a listing application made by an applicant, unless it is accompanied by a copy of the letter precedent to listing granted by the Authority. (4) The Board, in consultation with the Authority, may either by a general or a specific order, exempt the application of sub-regulations (1), (2) and (3) to any security or class of securities, for such period and subject to such conditions, if any, as may be specified in the order. 10. Application for the Letter Precedent to Listing (1) An applicant desirous of obtaining a letter precedent to listing from the Authority shall make an application to the Authority in such form and in such manner and together with such information or documents, as may be specified by the Authority, from time to time. (2) Notwithstanding anything contained in any regulations or guidelines issued by the Board, an applicant seeking listing of securities shall file only with the Authority the draft offer documents including for public and rights issues by companies and bodies corporate, or draft offer documents of schemes of mutual funds or collective investment schemes and the Board may offer its observations, if any, to the Authority on such draft offer documents. (3) An application for letter precedent to listing shall specify the exchange or exchanges where the applicant is desirous of listing its securities indicating also, wherever applicable, the designated stock exchange for the purposes of finalizing the basis of allotment and for depositing the security deposit. (4) Any application for a letter precedent to listing shall be accompanied by such application fees as may be specified by the Board, in consultation with the Authority, from time to time. 11. Procedure on Receipt of Application (1) Upon receipt of an application under regulation 10, the Authority may direct the applicant to furnish such additional information, documents or clarifications as may be required by the Authority, for the purpose of processing the said application and thereupon the applicant shall provide all such information within the time stipulated by the Authority. (2) In the event the applicant supresses any material information or misrepresents facts to the Authority or does not provide the information or documents sought by the Authority or does not inform the Authority of any relevant and material developments that take place subsequent to the filing and during the pendency of the application, the Authority shall be entitled to reject the application for letter precedent to listing. (3) The Authority shall be entitled to disclose to any person, exchange or authority the contents of the application and the information, documents or clarifications received by the Authority from the applicant and to invite their comments and views. (4) Notwithstanding the primary obligation of the applicant to furnish information or
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SUPPLEMENT FOR SECURITIES LAWS & REGULATION OF FINANCIAL MARKETS clarifications under subregulation (1), the Authority may call from the exchanges their observations or comments on the application and call from any intermediaries registered with the Board, such further information as it may deem necessary in connection with the processing of an application for a letter precedent to listing.
(5) The Authority after examining the application and the information or clarifications called for, may either grant or refuse to grant the letter precedent to listing, and this shall be done within thirty days of the making of the application or of furnishing of the information or clarification by the applicant, as the case may be: Provided that the Authority shall not refuse to grant the letter precedent to listing unless the applicant is given an opportunity of making representation. (6) The Authority shall, while processing the application, have regard to the following factors : (a) compliance with the provisions of the Companies Act, 1956 pertaining to issue of securities; (b) compliance with the Guidelines or Regulations of the Board relating to Disclosure and Investor Protection; (c) compliance with the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996 or the Securities and Exchange Board of India (Collective Investment Schemes) Regulations, 1999, or other relevant regulations or guidelines issued by the Board where applicable; (d) compliance with the listing conditions specified under the Act, the Securities Contracts (Regulation) Act, 1956 and the rules made thereunder and those specified by exchanges, or otherwise; and, (e) such other factors as the Authority may consider relevant in connection with processing the application, including, but not limited to, the following: (i) whether listing of securities of the applicant may be detrimental to the interests of investors or the securities market in view of the business practices, antecedents, credibility, financial morality, and market reputation of the applicant and of its promoters or group companies and of its directors or persons in control or persons acting in concert with the applicant; (ii) whether the applicant has made any provision for monitoring or control or supervision of the use of funds raised by the applicant through the issue of securities or based thereon; and, (iii) whether the applicant has made a disclosure in the offer document of the availability and mechanism of safety net, if any. 12. Other Provisions as to Letter Precedent to Listing (1) The Authority may, while granting the letter precedent to listing, impose such conditions as it deems fit including conditions as to the manner, the required prominence and the wordings of the disclosures to be made in the offer documents and advertisements. (2) Failure by the applicant to comply with the conditions imposed under subregulation (1) shall, unless otherwise waived by the Authority in writing, render the letter precedent to listing invalid.
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(3) Any letter precedent to listing granted by the Authority shall specify the names of the exchange(s) where the applicant may make a listing application. (4) Where the Authority issues a letter precedent to listing with any conditions, the applicant shall comply with such conditions and confirm the same to the Authority, within such time as may be specified by the Authority. (5) The Authority shall be entitled to lay down any fresh conditions subsequent to the grant of a letter precedent to listing as may be necessitated by new guidelines or directions issued by the Board or due to some relevant developments in the securities market and the applicant shall comply with such conditions and confirm the same to the Authority, within such time as may be specified by the Authority. (6) The Authority shall communicate its decision made under sub-regulation (5) of regulation 11 to the applicant and to the exchange or exchanges specified by the applicant in its application for letter precedent to listing. (7) The Authority may, subsequent to the issue of letter precedent to listing, direct the applicant, exchanges or other intermediaries registered with the Board to furnish it such information as may be necessary to enable it to determine whether the applicant is in compliance with conditions imposed by applicable rules, regulations and guidelines or by the Authority in the letter precedent to listing. (8) Any letter precedent to listing granted by the Authority under these regulations shall, unless specified otherwise by the Authority, have a validity period of 90 days by which time the subscription list for public issues and rights issues should have opened and in the case of other kind of issue, the securities should have been listed on the Exchange: Provided that the Authority at its discretion may, upon an application made by the applicant in this behalf, prior to the expiry of the validity period, extend the validity period of a letter precedent to listing subject to such conditions, if any, as it deems fit to impose. (9) Where an applicant changes the terms and conditions of the issue in respect of which a letter precedent to listing was granted to it or where any material developments take place which have a bearing on the issue or listing of the securities, the Authority may withdraw the letter precedent to listing: Provided the Authority shall prior to withdrawing a letter precedent to listing under this clause give an opportunity of making representation to the applicant. (10) The Authority may withdraw the letter precedent to listing where it is satisfied, based upon information available to it, that (i) the applicant had either suppressed material facts or misrepresented facts in its application for letter precedent to listing; or (ii) the applicant has ceased to fulfill the qualifications specified in clause (e) of sub-regulation(6) of regulation 11; or (iii) withdrawal of a letter precedent to listing is desirable in the larger interests of investors and the securities market: Provided that the Authority shall, if it proposes to withdraw a letter precedent to
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SUPPLEMENT FOR SECURITIES LAWS & REGULATION OF FINANCIAL MARKETS listing, communicate the grounds for such proposal to the applicant and afford him an opportunity of making representation: Provided further that the letter precedent to listing may be withdrawn by the Authority only if the securities are not listed on the exchanges andif the securities have already been listed, the Authority shall inform the Board and the exchanges for taking such action, including delisting of securities, as they may deem fit.
13. Appeal An order passed by the Authority declining to grant or withdrawing a letter precedent to listing shall be deemed to be an order of the Board within the meaning of clause (a) of sub-section (1) of Section 15T of the Act and shall be appealable to the Securities Appellate Tribunal in accordance with the provisions of the Act. 14. Application to Exchanges for Listing (1) On receipt of the letter precedent to listing from the Authority, the applicant may make a listing application to the exchange(s) in respect of which the letter precedent to listing has been granted, enclosing therewith a copy of the letter precedent to listing. (2) On receipt of the listing application, the exchange(s) shall proceed with the same in the manner provided for under the Securities Contracts (Regulation) Act, 1956 and the rules and byelaws made thereunder. (3) Unless otherwise permitted by the Authority, the applicant shall ensure that the securities for which it has obtained a letter precedent to listing are listed on the same day at all the concerned exchanges. 15. Appeal against Refusal of Listing by Exchange An applicant may prefer an appeal against the decision of an exchange refusing listing to the Securities Appellate Tribunal as provided in Section 22A of the Securities Contracts (Regulation) Act, 1956. 16. Powers of the Authority to Regulate its Procedures and Operational Guidelines (1) Subject to the provisions of these regulations and with the previous approval of the Board, the Authority shall have power to set out and regulate its own procedures. (2) Without prejudice to the generality of its power under subregulation (1), the Authority may, with the previous approval of the Board, frame operational guidelines for the performance of its functions. 17. Company or Other Body Corporate, Mutual Fund or Collective Investment Scheme to Continue to Comply with Listing Conditions and Listing Agreement (1) These regulations are in addition to, and not in derogation of, the listing agreement and the listing conditions. (2) An exchange in which any securities of a body corporate, mutual fund or collective investment scheme are listed shall comply with the listing agreement.
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(3) If a company or other body corporate, mutual fund or collective investment scheme fails to comply with these regulations, the listing conditions or the listing agreement or neglects to furnish any information or documents, which are required to be furnished to the Board, to the Authority or to an exchange as per these regulations, the listing conditions or the listing agreement, it shall be liable to penalty as specified in Section 15A or Section 15HB of the Act, to be imposed in accordance with the procedure prescribed under Chapter VI A of the Act. CHAPTER IV MISCELLANEOUS 18. Power of the Board to Supersede the Authority (1) If at any time the Board is of the opinion that circumstances exist which render it necessary in the interests of investors or the securities market or in the public interest so to do, the Board may, by order, supersede the Authority for such period as may be specified in the order. (2) Upon the issuance of an order under sub-regulation (1) superseding the Authority: (a) all Members shall, as from the date of supersession, be deemed to have vacated their offices; and (b) all functions and powers which may, by or under the provisions of these regulations, be exercised or discharged by or on behalf of the Authority, shall until the Authority is reconstituted under sub-regulation (3), be exercised and discharged by the Board or such person or persons the Board may direct. (3) On the expiration of the period of supersession specified in the notification issued under subregulation (1), or earlier in the discretion of the Board, the Board may reconstitute the Authority by fresh appointment and in such case any person or persons who vacated their offices under clause (a) of subregulation (2), shall not be deemed disqualified for appointment; Provided that the Board may at any time, even before the expiration of the period of supersession, take action under this sub-regulation. 19. Reporting and Exchange of Information (1) The Authority shall furnish to the Board such returns and statements at such time and in such form and manner as the Board may require. (2) It shall be competent for the Board and the Authority to exchange any information relevant for the discharge of their functions. 20. Records of the Authority The Authority shall maintain such books, records and documents and for such period as may be specified by the Board. 21. Repeal and Savings (1) The Securities and Exchange Board of India (Central Listing Authority) Regulations, 2003 notified by the Board vide S.O. No. 171(E) dated 13th February, 2003 are hereby repealed.
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SUPPLEMENT FOR SECURITIES LAWS & REGULATION OF FINANCIAL MARKETS (a) the Authority constituted under regulation 3 of the regulations hereby repealed shall be deemed to be appointed under the corresponding provisions of these regulations; and, anything done or any action taken or purported to have been done or taken, including any notice issued under the regulations hereby repealed shall, in so far as it is not inconsistent with the provisions of these regulations, be deemed to have been done or taken under the corresponding provisions of these regulations.
(2) Notwithstanding such repeal -
SEBI (DELISTING OF SECURITIES) GUIDELINES - 2003*

1. These guidelines shall be called Securities and Exchange Board of India (Delisting of Securities) Guidelines 2003. 2. These guidelines are being issued under section 11(1) of SEBI Act, 1992, read with sub-section (2) of Section 11A of SEBI Act, with the objective to protect the interest of investors in the securities market. 3. DEFINITIONS 3.1 In these Guidelines, unless the context otherwise requires:(a) Act means the Securities and Exchange Board of India Act, 1992; (b) Authority means the Central Listing Authority established under the Securities and Exchange Board of India (Central Listing Authority) Regulations, 2003. (c) Board means the Securities and Exchange Board of India established under section 3 of the Act; (d) compulsory delisting means delisting of the securities of a company by an exchange. (e) delisting exchange means the exchange from which the securities of the company are proposed to be delisted in accordance with these Guidelines; (f) exchange means any stock exchange which has been granted recognition under section 4 of the Securities Contracts (Regulation) Act, 1956; (g) promoter means a promoter as defined in clause (h) of sub-regulation (1) of Regulation 2 of the Securities and Exchange Board of India (Substantial Acquisition of shares and Takeovers) Regulation, 1997 and includes a person i.e. who is desirous of getting the securities of the company delisted under these Guidelines; (h) public shareholding means the shareholding in a company held by persons other than the promoter, the acquirer or the persons acting in concert with him as defined in regulation 2(1)(j) of the Securities and Exchange Board of India (Substantial Acquisition of shares and Takeovers) Regulation, 1997 and the term public holders of securities shall be construed accordingly; (i) schedule means a schedule appended to these Guidelines. (j) voluntary delisting means delisting of securities of a body corporate voluntarily by a promoter or an acquirer or any other person other than the stock exchange(s). *
Issued by SEBI vide Notification No. SMD/POLICY/CIR-7/2003 dated 17.2.2003.
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SUPPLEMENT FOR SECURITIES LAWS & REGULATION OF FINANCIAL MARKETS 3.2 Words and expressions not defined in these Guidelines shall have the same meaning as have been assigned to them under the Act or the Securities Contracts (Regulation) Act, 1956 or the Companies Act, 1956, or any statutory modification or re-enactment thereof, as the case may be.
4. APPLICABILITY 4.1 These guidelines shall be applicable to delisting of securities of companies and specifically shall apply to: (a) Voluntary delisting being sought by the promoters of a company (b) any acquisition of shares of the company (either by a promoter or by any other person) or scheme or arrangement, by whatever name referred to, consequent to which the public shareholding falls below the minimum limit specified in the listing conditions or listing agreement that may result in delisting of securities; (c) Promoters of the companies who voluntarily seek to delist their securities from all or some of the stock exchanges; (d) cases where a person in control of the management is seeking to consolidate his holdings in a company, in a manner which would result in the public shareholding in the company falling below the limit specified in the listing conditions or in the listing agreement that may have the effect of company being delisted; (e) companies which may be compulsorily delisted by the stock exchanges; 4.2 Provided that company shall not be permitted to use the buy-back provision to delist its securities. 5. DELISTING OF SECURITIES (VOLUNTARY) OF A LISTED COMPANY 5.1 A company may delist from stock exchange where its securities are listed. Provided that the securities of the company have been listed for a minimum period of 3 years on any stock exchange. Provided further that an exit opportunity has been given to the investors for the purpose of which an exit price shall be determined in accordance with the book building process described in clauses 7-10 and 13 and 14 of these guidelines. 5.2 An exit opportunity need not be given in cases where securities continue to be listed in a stock exchange having nation wide trading terminals.
Explanation : For the purposes of these guidelines, stock exchange having nationwide trading terminals means the Stock Exchange, Mumbai, the National Stock Exchange and any other stock exchange, which may be specified by the Board.
6. PROCEDURE FOR VOLUNTARY DELISTING 6.1 Any promoter or acquirer desirous of delisting securities of the company under the provisions of these guidelines shall : (a) obtain the prior approval of shareholders of the company by a special resolution passed at its general meeting;
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(b) make a public announcement in the manner provided in these Guidelines. (c) make an application to the delisting exchange in the form specified by the exchange, annexing therewith a copy of the special resolution passed under sub-clause (a); and; (d) comply with such other additional conditions as may be specified by the concerned stock exchanges from where securities are to be delisted. 7. PUBLIC ANNOUNCEMENT FOR VOLUNTARY DELISTING 7.1 Before making application for delisting, the promoters or the acquirers of the company shall make a public announcement. 7.2 The public announcement shall contain inter-alia information specified in Schedule I. 7.3 Before making the public announcement, the promoter shall appoint a merchant banker registered with the Board, who is not an associate of the promoter. 8. EXIT PRICE FOR VOLUNTARY DELISTING OF SECURITIES 8.1 Any promoter of a company which desires to delist from the stock exchange shall determine an exit price for delisting of securities in accordance with the book building process described in Schedule II of these guidelines. 8.2 The offer price shall have a floor price, which will be the average of 26 weeks traded price quoted on the stock exchange where the shares of the company are most frequently traded preceding 26 week from the date of the public announcement and without any ceiling of maximum price. 8.3 In the case of infrequently traded securities the offer price shall be as per regulation 20(5) of the SEBI (Substantial Acquisition and Takeover) Regulations, and the infrequently traded securities shall be determined in the manner explained under regulation 20(5) of the SEBI (Substantial Acquisition and Takeover) Regulations. 8.4 The stock exchange(s) shall provide the infrastructure facility for display of the price at the terminals of the trading members to enable the investors to access the price on the screen to bring transparency to the delisting process. 8.5 In the event of securities being delisted, the acquirer shall allow a further period of 6 months for any of the remaining shareholders to tender securities at the same price. 8.6 The stock exchanges shall monitor the possibility of price manipulation and keep under special watch the securities for which announcement for delisting has been made. 8.7 To ascertain the genuineness of physical securities if tendered and to avoid the bad delivery, Registrar and Transfer Agent shall co-operate with the Clearing House / Clearing Corporation to determine the quality of the papers upfront. 8.8 If the quantity eligible for acquiring securities at the final price offered does not result in public shareholding falling below required level of public holding for continuous listing, the company shall remain listed.
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8.9 The paid up share capital shall not be extinguished as in the case of buyback of securities; 8.10 In case of partly paid-up securities, the price determined by the book building process shall be applicable to the extent the call has been made and paid. 8.11 The amount of consideration for the tendered and acceped securities shall be settled in cash; 9. RIGHT OF PROMOTER 9.1 The promoter may not accept the securities at the offer price determined by the book building process. 9.2 Where the promoter decides not to accept the offer price so determined: (a) he shall not make an application to the exchange for delisting of the securities; and (b) the promoter shall ensure that the public shareholding is brought up to the minimum limits specified under the listing conditions within a period of 6 months from the date of such decision, by any of the modes specified in sub-clause 9.3. 9.3 For the purposes of sub-clause 9.2(b), the public shareholding may be increased by any of the following means: (a) by issue of new shares by the company in compliance with the provisions of the Companies Act, 1956 and the Securities and Exchange Board of India (Disclosure and Investor Protection) Guidelines, 2000; (b) by the promoter making an offer for sale of his holdings in compliance with the provisions of the Companies Act, 1956 and the Securities and Exchange Board of India (Disclosure and Investor Protection) Guidelines, 2000; (c) by the promoter making sale of his holdings through the secondary market in a transparent manner; 9.4 In the event of the promoter not being able to raise the public shareholding in accordance with sub-clause 9.3 within six months, he shall offer for sale to the public such portion of his holdings as would bring up the public shareholding to the minimum limits specified in the listing agreement or the listing conditions at the price determined by the Central Listing Authority. 10. PUBLIC ANNOUNCEMENT OF FINAL PRICE 10.1 On determination of the final price pursuant to the book building, the promoter or the acquirer shall within a period of two working days from such determination: (a) make a public announcement in the newspapers of the final price as discovered by the book building process and whether or not the promoter or the acquirer has accepted the price; and, (b) communicate to, exchange or exchanges from which delisting is sought to be made, the final price discovered and whether the promoter has accepted the price.
SUPPLEMENT FOR SECURITIES LAWS & REGULATION OF FINANCIAL MARKETS 11. DELISTING FROM ONE OR MORE STOCK EXCHANGES
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11.1 When a company which is listed on any stock exchange or stock exchanges other than the stock exchanges having nationwide trading terminals, seeks delisting, an exit offer shall be made to the shareholders in accordance with these guidelines. 11.2 There shall not be any compulsion for the existing company to remain listed on any stock exchange merely because it is a regional stock exchange. 12. MINIMUM NUMBER OF SHARES TO BE ACQUIRED 12.1 Where the offer for delisting results in acceptance of a fewer number of shares than the total shares outstanding and as a consequence the public shareholding does not fall below the minimum limit specified by the listing conditions or the listing agreement, the offer shall be considered to have failed and no securities shall be acquired pursuant to such offer. 13. PAYMENT OF CONSIDERATION 13.1 The payment of consideration for delisting of securities shall be paid in cash by the promoter or acquirer. 14. DELISTING OF ONE OR ALL CLASS OF SECURITIES 14.1 A company may delist one or all of its class of securities subject to the provisions of this clause. 14.2 If the equity shares of a company are delisted, the fixed income securities may continue to remain listed on the stock exchange. 14.3 A company which has a convertible instrument outstanding, it shall not be permitted to delist its equity shares till the exercise of the conversion options. 15. COMPULSORY DELISTING OF COMPANIES BY STOCK EXCHANGES 15.1 The Stock Exchanges may delist companies which have been suspended for a minimum period of six months for non-compliance with the Listing Agreement. 15.2 The Stock Exchanges may also delist companies as per the norms provided in Schedule III. 15.3 The Stock Exchange shall give adequate and wide public notice through news papers (including one English national daily of wide circulation) and through display of the notice on the notice board/ website/ trading systems of the Exchange. 15.4 The stock exchange shall give a show cause notice to a company or adopt procedure provided under Part B of Schedule III for delisting under subclause 15.1 and 15.2. 15.5 The exchange shall provide a time period of 15 days within which representation may be made to the exchange by any person who may be aggrieved by the proposed delisting 15.6 The stock exchange shall ensure that adequate and wide public notice is
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SUPPLEMENT FOR SECURITIES LAWS & REGULATION OF FINANCIAL MARKETS given through newspapers and on the notice boards/trading systems of the stock exchanges after the period of show cause is over. 15.7 The stock exchange shall display the name of such company on its website.
16. RIGHTS OF SECURITIES HOLDERS IN CASE OF COMPULSORY DELISTING 16.1 Where the securities of the company are delisted by an exchange, the promoter of the company shall be liable to compensate the security-holders of the company by paying them the fair value of the securities held by them and acquiring their securities, subject to their option to remain security-holders with the company.
Explanation : For the purposes of this sub-clause fair value shall be determined by the arbitrator having regard to the factors mentioned in Regulation 20 of the Securities and Exchange Board of India (Substantial Acquisition of shares and Takeovers) Regulations, 1997.
16.2 The security holders may enforce their claim to compensation/fair value under this clause through the arbitration mechanism of the exchange in the manner laid down in its byelaws. 17. DELISTING PURSUANT TO RIGHTS ISSUE 17.1 In case of rights issue, allotment to the promoters or the persons in control of the management shall be allowed even if they subscribe to unsubscribed portion which may result in public shareholding falling below the permissible minimum level. Provided that the adequate disclosures have been made in the offer document to that effect. Provided further that they agree to buy out the remaining holders at the price of rights issue or make an offer for sale to bring the public shareholding at the level specified in the listing conditions or listing agreement to remain listed. 17.2 In case the rights issue is not fully subscribed, which may result in the public shareholding falling below the permissible minimum level as specified in the listing condition or listing agreement, the promoter(s) of the company shall be required to delist by providing an exit opportunity in the manner specified in clause 17.1 of these guidelines or may be required to make offer for sale of their holdings so that the public shareholding is raised to the minimum level specified in the listing agreement or in the listing conditions within a period of 3 months. 18. REINSTATEMENT OF DELISTED SECURITIES Reinstatement of delisted securities should be permitted by the stock exchanges with a cooling period of 2 years. In other words, relisting of securities should be allowed only after 2 years of delisting of the securities. It would be based on the respective norms/criteria for listing at the time of making the application for listing and the application will be initially scrutinized by the Central Listing Authority.
SUPPLEMENT FOR SECURITIES LAWS & REGULATION OF FINANCIAL MARKETS SCHEDULE I
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(See Guideline 7.2)

Contents of the Public Announcement 1. The floor price and how it was reached 2. The dates of opening and closing of the bidding 3. The name of the exchange or exchanges from which the securities are sought to be delisted. 4. The names and addresses of the trading members as well as the bidding terminals and centres through which bids can be placed. 5. Description of the methodology to be adopted for determination of acceptable price 6. Period for which the offer shall be valid 7. The necessity and the object of the delisting 8. A full and complete disclosure of all material facts. 9. The proposed time table from opening of the offer till the settlement of the transfers. 10. Details of the escrow account and the amount deposited therein. 11. Listing details and stock market data: (a) high, low and average market prices of the securities of the company during the preceding three years; (b) monthly high and low prices for the six months preceding the date of the public announcement; and, (c) the volume of securities traded in each month during the six months preceding the date of public announcement. 12. Present capital structure and shareholding pattern. 13. The likely post-delisting capital structure. 14. The aggregate shareholding of the promoter group and of the directors of the promoters, where the promoter is a company and of persons who are in control of the company. 15. Name of compliance officer of the company. 16. It should be signed and dated by the promoter. SCHEDULE II
(See Guideline 8.1)

The Book Building Process 1. The book building process shall be made through an electronically linked transparent facility. 2. The number of bidding centres shall not be less than thirty, including all stock exchange centres and there shall be at least one electronically linked computer terminal at all bidding centres. 3. The promoter shall deposit in an escrow account, 100 per cent of the estimated
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SUPPLEMENT FOR SECURITIES LAWS & REGULATION OF FINANCIAL MARKETS amount of consideration calculated on the basis of the floor price indicated and the number of securities required to be acquired. The provisions of clause 10 of the Securities and Exchange Board of India (Buyback of Securities) Regulations, 1998 shall be applicable mutatis mutandis to such escrow account. 4. The offer to buy shall remain open to the security holders for a minimum period of three days. The security holders shall have a right to revise their bids before the closing of the bidding. 5. The promoter or acquirer shall appoint trading members for placing bids on the on-line electronic system. 6. Investors may approach trading members for placing offers on the on-line electronic system. The format of the offer form and the details that it must contain shall be specified. 7. The security holders desirous of availing the exit opportunity shall deposit the shares offered with the trading members prior to placement of orders. Alternately they may mark a pledge for the same to the trading member. The trading members in turn may place these securities as margin with the exchanges/clearing corporations. 8. The offers placed in the system shall have an audit trail in the form of confirmations which gives broker ID details with time stamp and unique order number. 9. The final offer price shall be determined as the price at which the maximum number of shares has been offered. The acquirer shall have the choice to accept the price. If the price is accepted then the acquirer shall be required to accept all offers upto and including the final price but may not have to accept higher priced offers, subject to clause 15. An illustration is given below:
Offer Quantity
50 82 108 27 5
Offer Price
120 125 130 135 140
Remarks
Floor price
Final price (as quantity offered is maximum).
10. If final price is accepted the acquirer shall have to accept offers up to and including the final price i.e. 240 shares at the final price of Rs. 130/-. 11. At the end of the book build period the merchant banker to the book building exercise shall announce in the press and to the concerned exchanges the final price and the acceptance (or not) of the price by the acquirer. 12. The acquirer shall make the requisite funds available with the exchange/clearing corporation on the final settlement day (which shall be three days from the end
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of the book build period). The trading members shall correspondingly make the shares available. On the settlement day the funds and securities shall be paid out in a process akin to secondary market settlements. 13. The entire exercise shall only be available for demat shares. For holders of physical certificates the acquirer shall keep the offer open for a period of 15 days from the final settlement day for the shareholders to lodge the certificates with custodian(s) specified by the merchant banker. SCHEDULE III
(Guideline 17.1)
Norms and Procedure for Delisting of Securities by the Stock Exchanges A. NORMS 1. The percentage of equity capital (floating stock) in the hands of public investors. This may be seen with reference to Existing paid-up equity capital Market lot Share price very high, medium, low Market Capitalisation SEBIs Takeover Regulations-Regulation 21(3) Clause 40A of the Listing Agreement 2. The minimum trading level of shares of a company on the exchanges. There should be some liquidity in every trading cycle. There should be some volume of trading for price discovery on the market. The Company should appoint market makers. Criteria of no-trading may be considered. 3. Financial aspect/Business aspects (a) The company should generate reasonable revenue/income/profits. It should be operational/working. It must demonstrate earning power through its financial results, profits, reserves, dividend payout for last 2/3 years. (b) If there is hardly any public interest in the securities the company then it is for consideration whether its listed company label needs to be retained any more. (c) The company should have some tangible asset. It is for consideration as to what value of assets the company should own in order to be listed continuously listed. 4. Track records of compliance of the Listing Agreement requirements for the past three years. Submission of audited/unaudited results, annual report, other documents required to be furnished to the Exchange Book closure Record date with due notice Payment of listing fee
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SUPPLEMENT FOR SECURITIES LAWS & REGULATION OF FINANCIAL MARKETS Service to investors especially with regard to timely return of shares duly transferred, timely payment of dividend, communication of price sensitive information, etc. Failure to observe good accounting practises in reporting earnings and financial position Publishing half yearly unaudited/audited results Frequent changes in Accounting year Share transfer agent Registered office Name 5. Promoters Directors track record especially with regard to insider trading, manipulation of share prices, unfair market practises (e.g. returning of share transfer documents under objection on frivolous grounds with a view to creating scarcity of floating stock, in the market causing unjust aberrations in the share prices, auctions, close-out, etc. (Depending upon the trading position of directors or the firms). 6. If whereabouts of the company, its promoters directors are not available and even the letters sent by the Exchange return undelivered and the company fails top remain in touch with the Exchange. 7. The company has become sick and unable to meet current debt obligations or to adequately finance operations, or has not paid interest on debentures for the last 2-3 years, or has become defunct,or there are no employees, or liquidator appointed, etc. 8. On the basis of the above norms and other relevant information available about the company, its promoters/directors, project, litigations, etc., a profile of the company should be prepared and then a decision on delisting should be taken by an Exchange.
B. PROCEDURE 1. The decision on delisting should be taken by a panel to be constituted by the Exchange comprising the following : (a) Two directors/officers of the Exchange (one director to be a public representative) (b) One representative of the investors (c) One representative from the Central Government (Department of Company Affairs)/ Regional Director / Registrar of Companies (d) Executive Director / Secretary of the Exchange 2. Due notice of delisting and intimation to the company as well as other Stock Exchanges where the companys securities are listed to be given. 3. Notice of termination of the Listing Agreement to be given. 4. An appeal against the order of compulsory delisting may be made to the SEBI.
SEBI (INFORMAL GUIDANCE) SCHEME, 2003*

1. This Scheme shall be called Securities and Exchange Board of India (Informal Guidance) Scheme 2003. 2.1 This Scheme is being issued under section 11(1) of SEBI Act, 1992 of the SEBI Act, in the interests of better regulation of and orderly development of the securities market. 2.2 The Scheme shall come into operation from 24.6.2003. 3.1 In this Scheme, unless the context otherwise requires:(a) Act means the Securities and Exchange Board of India Act, 1992; (b) Board means the Securities and Exchange Board of India established under section 3 of the Act; (c) Department means a Department of SEBI and includes a Division of SEBI; (d) Scheme means the SEBI (Informal Guidance Process) Scheme, 2003; 3.2 Words and expressions not defined in this Scheme shall have the same meaning as have been assigned to them under the Act or the Securities Contracts (Regulation) Act, 1956 or the Companies Act, 1956, or any statutory modification or re-enactment thereof, or any rules or regulations made thereunder, as the case may be. **4. The following persons may make a request for informal guidance under this scheme: (a) any intermediary registered with the Board under section 12 of the Act; (b) any listed company; (c) any company which intends to get any of its securities listed and which has filed either a listing application with any stock exchange or a draft offer document with the Board or the Central Listing Authority; (d) any mutual fund trustee company or asset management company; (e) any acquirer or prospective acquirer under the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997. 5. The informal guidance mentioned in para 4 may be sought for and given in two forms: (i) No-action letters : in which a Department of SEBI indicates that the Department would or would not recommend any action under any Act, Rules, Regulations, Guidelines, Circulars or other legal provisions administered by SEBI to the Board if the proposed transaction described in a request made under para 6 is consummated.
* ** Issued by SEBI on 24.6.2003 Substituted by Notification issued by SEBI on 22.1.2004.
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(ii) Interpretive letters : in which a Department of SEBI provides an interpretation of a specific provision of any Act, Rules, Regulations, Guidelines, Circulars or other legal provision being administered by SEBI in the context of a proposed transaction in securities or a specific factual situation. 6. A request seeking informal guidance shall comply with the following: (i) It shall state that it is being made under this scheme and also state whether it is a request for a no-action letter or an interpretive letter; (ii) It shall be accompanied with a fee of Rs. 25,000/-; (iii) It shall be addressed to the concerned Department of SEBI; and, (iv) It shall describe the request, disclose and analyse all material facts and circumstances involved and mention all applicable legal provisions. 7. SEBI may dispose off the request as early as possible and in any case not later than 60 days after the receipt of the request. The Department may give a hearing or conduct an interview if it feels necessary to do so. The requestor shall be entitled only to the reply. The internal records or views of SEBI shall be confidential. 8. SEBI may not respond to the following types of requests: (i) those which are general and those which do not completely and sufficiently describe the factual situation; (ii) those which involve hypothetical situations; (iii) those requests in which the requestor has no direct or proximate interest; (iv) where the applicable legal provisions are not cited; (v) where a no-action or interpretive letter has already been issued by that or any other Department on a substantially similar question involving substantially similar facts, as that to which the request relates; (vi) those cases in which investigation, enquiry or other enforcement action has already been initiated; (vii) those cases where connected issues are pending before any Tribunal or Court and on issues which are subjudice; and, (viii) those cases where policy concerns require that the Department does not respond. 9. Where a request is rejected for non-compliance with para 6 or under para 8, the fee if any paid by the requestor shall be refunded to him after deducting therefrom a sum of Rs. 5,000/- towards processing fee. 10. SEBI shall not be under any obligation to respond to a request for guidance made under this scheme, and shall not be liable to disclose the reasons for declining to answer the request. 11. Confidentiality of request: (a) Any person submitting a letter or written communication under this scheme may request that it receive confidential treatment for a specified period of time
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not exceeding 90 days from the date of the Departments response. The request shall include a statement of the basis for confidential treatment. (b) If the Department determines to grant the request, the letter or written communication will not be available to the public until the expiration of the specified period. (c) If it appears to the Department that the request for confidential treatment should be denied, the requestor will be so advised and such person may withdraw the letter or written communication within 30 days of receipt of the advise, in which case the fee, if any, paid by him would be refunded to him. (d) In case where a request has been withdrawn under clause (c), no response will be given and the letter or written communication will remain in the SEBI files but will not be made available to the public. (e) If the letter or written communication is not withdrawn, it shall be available to the public together with any written staff response. 12. A no-action letter or an interpretive letter issued by a Department constitutes the view of the Department but will not be binding on the Board, though the Board may generally act in accordance with such a letter. 13. The letter issued by a Department under this scheme should not be construed as a conclusive decision or determination of any question of law or fact by SEBI. Such a letter cannot be construed as an order of the Board under section 15T of the Act and shall not be appealable. 14. Where a no action letter is issued by a Department affirmatively, it means that the Department will not recommend enforcement action to the Board, subject to other provisions of this scheme. 15. The guidance offered through the letters issued by Departments is conditional upon the requestor acting strictly in accordance with the facts and representations made in the letter. 16. SEBI shall not be liable for any loss or damage that the requestor or any other person may suffer on account of the request not being answered or being belatedly answered or the Board taking a different view from that taken in a letter already issued under this scheme. 17. Where the Department finds that a letter issued by it under this scheme has been obtained by the requestor by fraud or misrepresentation of facts, notwithstanding any legal action that the Department may take, it may declare such letter to be non est and thereupon the case of the requestor will be dealt with as if such letter had never been issued. Where SEBI issues a letter under this scheme, it may post the letter, together with the incoming request, in the SEBI website, subject to the provisions of para 11.
SEBI (PROHIBITION OF FRAUDULENT AND UNFAIR TRADE PRACTICES RELATING TO SECURITIES MARKET) REGULATIONS, 2003*
In exercise of the powers conferred by section 30 of the Securities and Exchange Board of India Act, 1992 (15 of 1992), the Board hereby makes the following regulations, namely:CHAPTER I PRELIMINARY 1. Short title and commencement (1) These regulations may be called the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Markets) Regulations, 2003. (2) They shall come into force on the date of their publication in the Official Gazette. 2. Definitions (1) In these regulations, unless the context otherwise requires,(a) Act means the Securities and Exchange Board of India Act, 1992 (15 of 1992); (b) dealing in securities includes an act of buying, selling or subscribing pursuant to any issue of any security or agreeing to buy, sell or subscribe to any issue of any security or otherwise transacting in any way in any security by any person as principal, agent or intermediary referred to in section 12 of the Act. (c) fraud includes any act, expression, omission or concealment committed whether in a deceitful manner or not by a person or by any other person with his connivance or by his agent while dealing in securities in order to induce another person or his agent to deal in securities, whether or not there is any wrongful gain or avoidance of any loss, and shall also include(1) a knowing misrepresentation of the truth or concealment of material fact in order that another person may act to his detriment; (2) a suggestion as to a fact which is not true by one who does not believe it to be true; (3) an active concealment of a fact by a person having knowledge or belief of the fact;
* Issued by SEBI vide Notification No. SO 816(E), dated 17-7-2003.
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SUPPLEMENT FOR SECURITIES LAWS & REGULATION OF FINANCIAL MARKETS (4) a promise made without any intention of performing it;
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(5) a representation made in a reckless and careless manner whether it be true or false; (6) any such act or omission as any other law specifically declares to be fraudulent; (7) deceptive behaviour by a person depriving another of informed consent or full participation; (8) a false statement made without reasonable ground for believing it to be true; (9) The act of an issuer of securities giving out misinformation that affects the market price of the security, resulting in investors being effectively misled eventhough they did not rely on the statement itself or anything derived from it other than the market price. And fraudulent shall be construed accordingly; Nothing contained in this clause shall apply to any general comments made in good faith in regard to (a) the economic policy of the government (b) the economic situation of the country (c) trends in the securities market or (d) any other matter of a like nature whether such comments are made in public or in private. (d) Investigating Authority means any officer of the Board not below the rank of Division Chief, authorized by the Board to undertake investigation under Section 11C of the Act; (e) securities means securities as defined in section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956). (2) Words and expressions used and not defined in these regulations, but defined in the Act or in the rules or regulations made thereunder, shall have the meanings respectively assigned to them in the Act or rules or regulations made thereunder, as the case may be. CHAPTER II PROHIBITION OF FRAUDULENT AND UNFAIR TRADE PRACTICES RELATING TO THE SECURITIES MARKET 3. Prohibition of certain dealings in securities No person shall directly or indirectly (a) buy, sell or otherwise deal in securities in a fraudulent manner; (b) use or employ, in connection with issue, purchase or sale of any security listed or proposed to be listed in a recognized stock exchange, any manipulative or deceptive device or contrivance in contravention of the provisions of the Act or the rules or the regulations made there under;
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SUPPLEMENT FOR SECURITIES LAWS & REGULATION OF FINANCIAL MARKETS (c) employ any device, scheme or artifice to defraud in connection with dealing in or issue of securities which are listed or proposed to be listed on a recognized stock exchange; (d) engage in any act, practice, course of business which operates or would operate as fraud or deceit upon any person in connection with any dealing in or issue of securities which are listed or proposed to be listed on a recognized stock exchange in contravention of the provisions of the Act or the rules and the regulations made there under.
4. Prohibition of manipulative, fraudulent and unfair trade practices (1) Without prejudice to the provisions of regulation 3, no person shall indulge in a fraudulent or an unfair trade practice in securities. (2) Dealing in securities shall be deemed to be a fraudulent or an unfair trade practice if it involves fraud and may include all or any of the following, namely:(a) indulging in an act which creates false or misleading appearance of trading in the securities market; (b) dealing in a security not intended to effect transfer of beneficial ownership but intended to operate only as a device to inflate, depress or cause fluctuations in the price of such security for wrongful gain or avoidance of loss; (c) advancing or agreeing to advance any money to any person thereby inducing any other person to offer to buy any security in any issue only with the intention of securing the minimum subscription to such issue; (d) paying, offering or agreeing to pay or offer, directly or indirectly, to any person any money or moneys worth for inducing such person for dealing in any security with the object of inflating, depressing, maintaining or causing fluctuation in the price of such security; (e) any act or omission amounting to manipulation of the price of a security; (f) publishing or causing to publish or reporting or causing to report by a person dealing in securities any information which is not true or which he does not believe to be true prior to or in the course of dealing in securities; (g) entering into a transaction in securities without intention of performing it or without intention of change of ownership of such security; (h) selling, dealing or pledging of stolen or counterfeit security whether in physical or dematerialized form; (i) an intermediary promising a certain price in respect of buying or selling of a security to a client and waiting till a discrepancy arises in the price of such security and retaining the difference in prices as profit for himself; (j) an intermediary providing his clients with such information relating to a security as cannot be verified by the clients before their dealing in such security; (k) an advertisement that is misleading or that contains information in a distorted manner and which may influence the decision of the investors; (l) an intermediary reporting trading transactions to his clients entered into on
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their behalf in an inflated manner in order to increase his commission and brokerage; (m) an intermediary not disclosing to his client transactions entered into on his behalf including taking an option position; (n) circular transactions in respect of a security entered into between intermediaries in order to increase commission to provide a false appearance of trading in such security or to inflate, depress or cause fluctuations in the price of such security; (o) encouraging the clients by an intermediary to deal in securities solely with the object of enhancing his brokerage or commission. (p) an intermediary predating or otherwise falsifying records such as contract notes. (q) an intermediary buying or selling securities in advance of a substantial client order or whereby a futures or option position is taken about an impending transaction in the same or related futures or options contract. (r) planting false or misleading news which may induce sale or purchase of securities. CHAPTER III INVESTIGATION 5. Power of the Board to order investigation Where the Board, the Chairman, the member or the Executive Director (hereinafter referred to as appointing authority) has reasonable ground to believe that (a) the transactions in securities are being dealt with in a manner detrimental to the investors or the securities market in violation of these regulations; (b) any intermediary or any person associated with the securities market has violated any of the provisions of the Act or the rules or the regulations, it may, at any time by order in writing, direct any officer not below the rank of Division Chief (hereinafter referred to as the Investigating Authority) specified in the order to investigate the affairs of such intermediary or persons associated with the securities market or any other person and to report thereon to the Board in the manner provided in section 11C of the Act. 6. Powers of Investigating Authority Without prejudice to the powers conferred under the Act, the Investigating Authority shall have the following powers for the conduct of investigation, namely:(1) to call for information or records from any person specified in section 11(2)(i) of the Act; (2) to undertake inspection of any book, or register, or other document or record of any listed public company or a public company (not being intermediaries referred to in section 12 of the Act) which intends to get its securities listed on any recognized stock exchange where the Investigating Authority has reasonable
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SUPPLEMENT FOR SECURITIES LAWS & REGULATION OF FINANCIAL MARKETS grounds to believe that such company has been conducting in violation of these regulations; (3) to require any intermediary or any person associated with securities market in any manner to furnish such information to, or produce such books, or registers, or other documents, or record before him or any person authorized by him in this behalf as he may consider necessary if the furnishing of such information or the production of such books, or registers, or other documents, or record is relevant or necessary for the purposes of the investigation; (4) to keep in his custody any books, registers, other documents and record produced under this regulation for a maximum period of one month which may be extended upto a period of six months by the Board: Provided that the Investigating Authority may call for any book, register, other document or record if the same is needed again: Provided further that if the person on whose behalf the books, registers, other documents and record are produced requires certified copies of the books, registers, other documents and record produced before the Investigating Authority, he shall give certified copies of such books, registers, other documents and record to such person or on whose behalf the books, registers, other documents and record were produced; (5) to examine orally and to record the statement of the person concerned or any director, partner, member or employee of such person and to take notes of such oral examination to be used as an evidence against such person: Provided that the said notes shall be read over to, or by, and signed by, the person so examined; (6) to examine on oath any manager, managing director, officer or other employee of any intermediary or any person associated with securities market in any manner in relation to the affairs of his business and may administer an oath accordingly and for that purpose may require any of those persons to appear before him personally.
7. Power of the Investigating Authority to be exercised with prior approval The Investigating Authority may, after obtaining specific approval from the Chairman or Member also exercise all or any of the following powers, namely :(a) to call for information and record from any bank or any other authority or board or corporation established or constituted by or under any Central, State or Provincial Act in respect of any transaction in securities which are under investigation; (b) to make an application to the Judicial Magistrate of the first class having jurisdiction for an order for the seizure of any books, registers, other documents and record, if in the course of investigation, the Investigating Authority has reasonable ground to believe that such books, registers, other documents and record of, or relating to, any intermediary or any person associated with securities market in any manner may be destroyed, mutilated, altered, falsified or secreted; (c) to keep in his custody the books, registers, other documents and record seized under these regulations for such period not later than the conclusion of the investigation as he considers necessary and thereafter to return the same to the
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person, the company or the other body corporate, or, as the case may be, to the managing director or the manager or any other person from whose custody or power they were seized: Provided that the Investigating Authority may, before returning such books, registers, other documents and record as aforesaid, place identification marks on them or any part thereof; (d) Save as otherwise provided in this regulation, every search or seizure made under this regulation shall be carried out in accordance with the provisions of the Code of Criminal Procedure, 1973 (2 of 1974) relating to searches or seizures made under that Code. 8. Duty to co-operate, etc. (1) It shall be the duty of every person in respect of whom an investigation has been ordered under regulation 7 (a) to produce to the Investigating Authority or any person authorized by him such books, accounts and other documents and record in his custody or control and to furnish such statements and information as the Investigation Authority or the person so authorized by him may reasonably require for the purposes of the investigation; (b) to appear before the Investigation Authority personally when required to do so by him under regulation 6 or regulation 7 to answer any question which is put to him by the Investigation Authority in pursuance of the powers under the said regulations. (2) Without prejudice to the provisions of sections 235 to 241 of the Companies Act, 1956 (1 of 1956), it shall be the duty of every manager, managing director, officer and other employee of the company and every intermediary referred to in section 12 of the Act or every person associated with the securities market to preserve and to produce to the Investigating Authority or any person authorized by him in this behalf, all the books, registers, other documents and record of, or relating to, the company or, as the case may be, of or relating to, the intermediary or such person, which are in their custody or power. (3) Without prejudice to the generality of the provisions of sub-regulations (1) and (2), such person shall (a) allow the Investigating Authority to have access to the premises occupied by such person at all reasonable times for the purpose of investigation; (b) extend to the Investigating Authority reasonable facilities for examining any books, accounts and other documents in his custody or control (whether kept manually or in computer or in any other form) reasonably required for the purposes of the investigation; (c) provide to such Investigating Authority any such books, accounts and records which, in the opinion of the Investigating Authority, are relevant to the investigation or, as the case may be, allow him to take out computer outprints thereof.
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9. Submission of report to the Board The Investigating Authority shall, on completion of investigation, after taking into account all relevant facts, submit a report to the appointing authority: Provided that the Investigating Authority may submit an interim report pending completion of investigations if he considers necessary in the interest of investors and the securities market or as directed by the appointing authority. 10. Enforcement by the Board The Board may, after consideration of the report referred to in regulation 9, if satisfied that there is a violation of these regulations and after giving a reasonable opportunity of hearing to the persons concerned, issue such directions or take such action as mentioned in regulation 11and regulation 12: Provided that the Board may, in the interest of investors and the securities market, pending the receipt of the report of the investigating authority referred to in regulation 9, issue directions under regulation 11: Provided further that the Board may, in the interest of investors and securities market, dispense with the opportunity of pre-decisional hearing by recording reasons in writing and shall give an opportunity of post-decisional hearing to the persons concerned as expeditiously as possible. 11. (1) The Board may, without prejudice to the provisions contained in subsections (1), (2), (2A) and (3) of section 11 and section 11B of the Act, by an order, for reasons to be recorded in writing, in the interests of investors and securities market, issue or take any of the following actions or directions, either pending investigation or enquiry or on completion of such investigation or enquiry, namely:(a) suspend the trading of the security found to be or prima-facie found to be involved in fraudulent and unfair trade practice in a recognized stock exchange; (b) restrain persons from accessing the securities market and prohibit any person associated with securities market to buy, sell or deal in securities; (c) suspend any office-bearer of any stock exchange or self-regulatory organization from holding such position; (d) impound and retain the proceeds or securities in respect of any transaction which is in violation or prima facie in violation of these regulations; (e) direct any intermediary or any person associated with the securities market in any manner not to dispose of or alienate an asset forming part of a fraudulent and unfair transaction; (f) require the person concerned to call upon any of its officers, other employees or representatives to refrain from dealing in securities in any particular manner; (g) prohibit the person concerned from disposing of any of the securities acquired in contravention of these regulations; (h) direct the person concerned to dispose of any such securities acquired in contravention of these regulations, in such manner as the Board may deem fit, for restoring the status-quo ante ;
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(2) The Board shall issue a press release in respect of any final order passed under sub-regulation (1) in atleast two newspapers of which one shall have nationwide circulation and shall also put the order on the website of the Board. 12. Suspension or cancellation of registration (1) The Board may, without prejudice to the provisions contained in subsections (1), (2), (2A) and (3) of section 11 and section 11B of the Act, by an order, for reasons to be recorded in writing, in the interests of investors and securities market take the following action against an intermediary: (a) Issue a warning or censure (b) suspend the registration of the intermediary; or (c) cancel of the registration of the intermediary Provided that no final order of suspension or cancellation of an intermediary for violation of these regulations shall be passed unless the procedure specified in the regulations applicable to such intermediary under the Securities and Exchange Board of India (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulations, 2002 is complied with. 13. Repeal and savings (1) The Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 1995 is hereby repealed. (2) Notwithstanding repeal of the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 1995, any violation of regulations 3, 4, 5 and 6 of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 1995 shall be investigated and proceeded against in accordance with the procedure laid down in these regulations. (3) Notwithstanding repeal of the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 1995, any investigation pending, at the commencement of these regulations shall be continued and disposed of in accordance with the procedure laid down in these regulations.
SEBI (OMBUDSMAN) REGULATIONS, 2003*

In exercise of the powers conferred by section 30, read with sub-section (1) of section 11, of the Securities and Exchange Board of India Act, 1992 (15 of 1992), the Board hereby makes the following regulations to provide for the establishment of the office of Ombudsman to redress the grievance of the investors in securities and for matters connected therewith or incidental thereto, namely:CHAPTER I PRELIMINARY 1. Short title and Commencement (1) These regulations may be called the Securities and Exchange Board of India (Ombudsman) Regulations, 2003. (2) They shall come into force on the date of their publication in the Official Gazette. 2. Definitions (1) In these regulations, unless the context otherwise requires,(a) Act means the Securities and Exchange Board of India Act, 1992 (15 of 1992); (b) award means a finding in the form of direction or an order of an Ombudsman given in accordance with these regulations; (c) authorised representative means a person duly appointed and authorised by a complainant or any other party to the complaint to act on his behalf and represent him in the proceedings before the Ombudsman; (d) Board means the Securities and Exchange Board of India established under section 3 of the Act; (e) Chairman means Chairman of the Board; (f) complaint means a representation in writing containing a grievance as specified in regulation 13 of these regulations; (g) complainant means any investor who lodges complaint with the Ombudsman and includes an investors association recognised by the Board; (h) intermediary means and includes a person referred to in section 12 of the Act; (i) investor means a person who invests or buys or sells or deals in securities; (j) listed company means a company whose securities are listed on a
* Issued by SEBI vide Notification No. SO 953(E) dated 21-8-2003.
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recognised stock exchange and includes a public company which intends to get its securities listed on a recognised stock exchange; (k) member means a member of the Board and includes the Chairman; (l) Ombudsman means any person appointed under regulation 3 of these regulations and unless the context otherwise requires, includes Stipendiary Ombudsman; (m) securities means Securities as defined in clause (h) of section 2 of the Securities Contracts (Regulation) Act,1956 (42 of 1956); (n) Stipendiary Ombudsman means a person appointed under regulation 9 for the purpose of acting as ombudsman in respect of a specific matter or matters in a specific territorial jurisdiction and for which he may be paid such expenses, honorarium or sitting fees as may be determined by the Board from time to time. (2) Words and expressions used and not defined in these regulations but defined in the Act or in the rules or regulations made under the Act shall have the meanings respectively assigned to them in the Act or in the rules or regulations made under the Act. CHAPTER II ESTABLISHMENT OF OFFICE OF OMBUDSMAN 3. Establishment and Appointment (1) With effect from such date as the Board may, by an order fix, there shall be established an office of Ombudsman for the purposes of these regulations. (2) The Board may, on recommendation of a Selection Committee, appoint one or more Ombudsmen for such territorial jurisdiction as may be specified from time to time by an order. (3) The Selection Committee referred in sub-regulation (2) shall consist of the following members, namely :*[(i) an expert in the areas relating to financial marekt operations to be nominated by the Chairman; (ii) a person having a special knowledge and experience of law, finance or economics, to be nominated by the Chairman]. (iii) a representative of the Board not below the rank of Executive Director who shall be Secretary of the Selection Committee, to be nominated by the Chairman. (4) At the request of the Board, the Selection Committee may also prepare a panel of persons out of which a person may be appointed as Stipendiary Ombudsman. (5) The panel under sub-regulation (4) shall remain in force for a maximum period of two years and shall be reconstituted from time to time. Provided that any person in the existing panel shall be eligible to be included in the reconstituted panel.
* Substituted by the SEBI (Ombudsman) (Amendment) Regulations,2003 vide 5-12-2003.
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SUPPLEMENT FOR SECURITIES LAWS & REGULATION OF FINANCIAL MARKETS (1) Office of the Ombudsman shall be located at the Head Office of the Board and if more than one Ombudsman are appointed then the office of any such Ombudsman may be located at any other office of the Board or any other place as may be specified by the Board from time to time. Provided that the Stipendiary Ombudsman when appointed for any specific complaint or complaints shall be located at such place as may be specified. (2) In order to expedite disposal of complaints, the Ombudsman or Stipendiary Ombudsman, as the case may be, may hold sittings at such places within his area of jurisdiction as may be considered necessary and proper by him. (3) The Board may provide the premises and other infrastructures including staff or secretarial assistance for the office of Ombudsman or Stipendiary Ombudsman, as the case may be.
4. Location of Office
5. Qualification In order to be appointed as an Ombudsman a person shall be (i) a citizen of India; (ii) of high moral integrity; (iii) not below the age of forty five years of age; and (iv) either (a) a retired District Judge or qualified to be appointed a District Judge, or (b) having at least ten years experience of service in any regulatory body, or (c) having special knowledge and experience in law, finance, corporate matters, economics, management or administration for a period not less than ten years, or (d) an office bearer of investors association recognised by the Board having experience in dealing with matters relating to investor protection for a period not less than 10 years. 6. Disqualification (1) A person shall not be qualified to hold the office of the Ombudsman if he (i) is an un-discharged insolvent ; (ii) has been convicted of an offence involving moral turpitude; (iii) has been found to be of unsound mind and stands so declared by a competent court; (iv) has been charge sheeted for any offence including economic offences; or (v) has been a whole-time director in the office of an intermediary or a listed company and a period of at least 3 years has not elapsed. 7. Tenure *[(1) A person appointed as an Ombudsman shall hold office for a term of three years and shall be eligible for reappointment for another period of two years.
* Substituted by the SEBI (Ombudsman) (Amendment) Regulations, 2003, dated 5-12-2003.
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Provided that no person shall hold the office of Ombudsman after attaining the age of sixty-five years.] (2) The Board, at any time, before the expiry of the period specified under subregulation (1) may terminate the services of the Ombudsman by giving him notice of not less than three months in writing or three months salary and allowances in lieu thereof, and the Ombudsman shall also have the right to relinquish his office, at any time, before the expiry of period specified under sub-regulation (1), by giving to the Board notice of not less than three months in writing. 8. Remuneration The salary, allowances, honorarium or fee payable to, and other terms and conditions of service of, an Ombudsman shall be determined by the Board from time to time. 9. Stipendiary Ombudsman (1) Notwithstanding the appointment of Ombudsman under sub-regulation (2) of regulation 3, the Board may appoint a person as a Stipendiary Ombudsman out of the panel prepared under sub-regulation (4) of regulation 3, for the purpose of acting as an Ombudsman in respect of a specific matter or matters in a specific territorial jurisdiction, as may be specified in the order of appointment. (2) A person shall be eligible to be appointed as Stipendiary Ombudsman who :(i) has held a judicial post or an executive office under the Central or State Government for atleast ten years; or (ii) is having experience of at least ten years in matters relating to consumer or investor protection; or (iii) has been a legal practitioner in corporate matters for atleast 10 years; or (iv) has served for a minimum period of ten years in any public financial institution within the meaning of section 4A of the Companies Act, 1956 (1 of 1956) or a regulatory body. (3) Save as otherwise specified by the Board, the Stipendiary Ombudsman shall exercise all powers and functions as are vested in a Ombudsman under these regulations. (4) The Stipendiary Ombudsman shall be paid such fees or honorarium and allowances for the services rendered by him, as may be determined by the Board from time to time. 10. Territorial Jurisdiction Every Ombudsman or Stipendiary Ombudsman shall exercise jurisdiction in relation to an area as may be specified by the Board by an order. CHAPTER III POWERS AND FUNCTIONS OF OMBUDSMAN 11. General The Ombudsman shall have the following powers and functions :(a) to receive complaints specified in regulation 13 against any intermediary or a listed company or both;
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SUPPLEMENT FOR SECURITIES LAWS & REGULATION OF FINANCIAL MARKETS (b) to consider such complaints and facilitate resolution thereof by amicable settlement; (c) to approve a friendly or amicable settlement of the dispute between the parties; (d) to adjudicate such complaints in the event of failure of settlement thereof by friendly or amicable settlement.
12. Other powers and functions (1) The Ombudsman shall (a) draw up an annual budget for his office in consultation with the Board and shall incur expenditure within and in accordance with the provisions of the approved budget; (b) submit an annual report to the Board within three months of the close of each financial year containing general review of activities of his office; and (c) furnish from time to time such information to the Board as may be required by the Board. (2) Every financial year of the Ombudsman shall end on 31st March of each year and the annual report shall be given in such form and manner as may be specified by the Board. CHAPTER IV PROCEDURE FOR REDRESSAL OF GRIEVANCE 13. Grounds of Complaint A person may lodge a complaint on any one or more of the following grounds either to the Board or to the Ombudsman concerned :(i) Non-receipt of refund orders, allotment letters in respect of a public issue of securities of companies or units of mutual funds or collective investments schemes; (ii) Non-receipt of share certificates, unit certificates, debenture certificates, bonus shares; (iii) Non-receipt of dividend by shareholders or unit-holders; (iv) Non-receipt of interest on debentures, redemption amount of debentures or interest on delayed payment of interest on debentures; (v) Non-receipt of interest on delayed refund of application monies; (vi) Non-receipt of annual reports or state ments pertaining to the portfolios; (vii) Non-receipt of redemption amount from a mutual fund or returns from collective investment scheme; (viii) Non-transfer of securities by an issuer company, mutual fund, Collective Investment Management Company or depository within the stipulated time; (ix) Non-receipt of letter of offer or consideration in takeover or buy-back offer or delisting; (x) Non-receipt of statement of holding corporate benefits or any grievances in respect of corporate benefits, etc; (xi) Any grievance in respect of public, rights or bonus issue of a listed company;
SUPPLEMENT FOR SECURITIES LAWS & REGULATION OF FINANCIAL MARKETS (xii) Any of the matters covered under section 55A of the Companies Act, 1956;
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(xiii) Any grievance in respect of issue or dealing in securities against an intermediary or a listed company. 14. Procedure of filing complaint (1) Any person who has a grievance against a listed company or an intermediary relating to any of the matters specified in regulation 13 may himself or through his authorised representative or any investors association recognised by the Board, make a complaint against a listed company or an intermediary to the Ombudsman within whose jurisdiction the registered or corporate office of such listed company or intermediary is located. Provided that if the Board has not notified any Ombudsman for a particular locality or territorial jurisdiction, the complainant may request the Ombudsman located at the Head Office of the Board for forwarding his complaint to the Ombudsman of competent jurisdiction. (2) The complaint shall be in writing duly signed by the complainant or his authorised representative (not being a legal practitioner) in the Form specified in the Schedule to these regulations and supported by documents, if any. (3) No complaint to the Ombudsman shall lie (a) unless the complainant had, before making a complaint to the Board or the Ombudsman concerned, made a written representation to the listed company or the intermediary named in the complaint and the listed company or the intermediary, as the case may be, had rejected the complaint or the complainant had not received any reply within a period of one month after the listed company or intermediary concerned received his representation or the complainant is not satisfied with the reply given to him by the listed company or an intermediary; (b) unless the complaint is made within six months from the date of the receipt of communication of rejection of his complaint by the complainant or within seven months after the receipt of complaint by the listed company or intermediary under clause (a) above. (c) if the complaint is in respect of the same subject matter which was settled through the Office of the Board or Ombudsman concerned in any previous proceedings, whether or not received from the same complainant or along with any one or more or other complainants or any one or more of the parties concerned with the subject matter; (d) if the complaint pertains to the same subject matter for which any proceedings before the Board or any court, tribunal or arbitrator or any other forum is pending or a decree or award or a final order has already been passed by any such competent authority, court, tribunal, arbitrator or forum. (e) if the complaint is in respect of or pertaining to a matter for which action has been taken by the Board under Section 11(4) of the Act or Chapter VI A of the Act or under sub-section (3) of section 12 of the Act or under any other regulations made under the Act.
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SUPPLEMENT FOR SECURITIES LAWS & REGULATION OF FINANCIAL MARKETS (4) The Ombudsman may dismiss in limine a complaint on any of the grounds specified under sub-regulation (3) or when such complaint is frivolous in his opinion.
15. Power to call for information (1) For the purpose of carrying out his duties under these regulations, an Ombudsman may require the listed company or the intermediary named in the complaint or any other person, institution or authority to provide any information or furnish certified copy of any document relating to the subject matter of the complaint which is or is alleged to be in its or his possession: Provided that in the event of the failure of a listed company or the intermediary to comply with the requisition made under sub-regulation (1) without any sufficient cause, the Ombudsman may, if he deems fit, draw the inference that the information, if provided or copies if furnished, would be unfavourable to the listed company or intermediary. (2) The Ombudsman shall maintain confidentiality of any information or document coming to his knowledge or possession in the course of discharging his duties and shall not disclose such information or document to any person except and as otherwise required by law or with the consent of the person furnishing such information or document: Provided that nothing in sub-regulation (2) shall prevent the Ombudsman from disclosing information or document furnished by a party in a complaint to the other party or parties, to the extent considered by him to be reasonably required to comply with the principles of natural justice and fair play in the proceedings. Provided further that provisions of sub-regulation (2) shall not apply in relation to the disclosures made or information furnished by the Ombudsman to the Board or to the publication of Ombudsmans award in any journal or newspaper or filing thereof before any Court, Forum or authority. 16. Settlement by Mutual Agreement (1) As soon as it may be practicable so to do, the Ombudsman shall cause a notice of the receipt of any complaint along with a copy of the complaint sent to the registered or corporate office of the listed company or office of the intermediary named in the complaint and endeavour to promote a settlement of the complaint by agreement or mediation between the complainant and the listed company or intermediary named in the complaint. (2) If any amicable settlement or friendly agreement is arrived at between the parties, the Ombudsman shall pass an award in terms of such settlement or agreement within one month from the date thereof and direct the parties to perform their obligations in accordance with the terms recorded in the award. (3) For the purpose of promoting a settlement of the complaint, the Ombudsman may follow such procedure and take such actions as he may consider appropriate. 17. Award an adjudication (1) In the event the matter is not resolved by mutually acceptable agreement within a period of one month of the receipt of the complaint or such extended period as may be permitted by the Ombudsman, he shall, based upon the material placed
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before him and after giving opportunity of being heard to the parties, give his award in writing or pass any other directions or orders as he may consider appropriate. (2) The award on adjudication shall be made by Ombudsman within a period of three months from the date of the filing of the complaint. Provided that no award shall be invalidated by reason alone of the fact that the award was made beyond the said period of three months. (3) The Ombudsman shall send his award to the parties to the adjudication to perform their obligations under the award. 18. Correction of Award (1) Within fifteen days from the receipt of the award a party, with notice to the other party, may request the Ombudsman to correct any computation errors, any clerical or typographical errors or any other errors of a similar nature occurring in the award. (2) If the Ombudsman considers the request made under sub-regulation (1) to be justified, he shall make the correction within fifteen days from the receipt of the request which shall form part of the award. (3) The Ombudsman may also rectify any error of the type referred to in subregulation (1), on his own initiative, within fifteen days from the date of the award. 19. Evidence act not to apply in the proceedings before ombudsman (1) In proceedings before the Ombudsman strict rules of evidence under the Evidence Act shall not apply and the Ombudsman may determine his own procedure consistent with the principles of natural justice. (2) Ombudsman shall decide whether to hold oral hearings for the presentation of evidence or for oral argument or whether the proceeding shall be conducted on the basis of documents and other materials. Provided that it shall not be necessary for an investor to be present at the oral hearing of proceedings under these regulations and the Ombudsman may proceed on the basis of the documentary evidence submitted before him. (3) No legal practitioner shall be permitted to represent the defendants or respondents at the proceedings before the Ombudsman except where a legal practitioner has been permitted to represent the complainants by the Ombudsman. 20. Finality to award and circumstances of review (1) Subject to the provisions of this regulation, an award shall be final and binding on the parties and persons claiming under them respectively. (2) Any party aggrieved by the award on adjudication may within one month from the receipt of the award under Regulation 17 or corrected award under Regulation 18 may file a petition before the Board setting out the grounds for review of the award. (3) An award may be reviewed by the Board only if (a) there is substantial mis-carriage of justice, or
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SUPPLEMENT FOR SECURITIES LAWS & REGULATION OF FINANCIAL MARKETS (b) there is an error apparent on the face of the award. (4) Where a petition for review of the award under sub-regulation (2) is filed by a party from whom the amount mentioned in the award is to be paid to the other party in terms of the award, such petition shall not be entertained by the Board unless the party filing the petition has deposited with the Board seventy-five percent of the amount mentioned in the award. Provided that the Board may, for reasons to be recorded in writing, waive or reduce the amount to be deposited under this sub-regulation. (5) The Board may review the award and pass such order as it may deem appropriate. (6) The Board shall endeavour to dispose of the matter within a period of forty five days of the filing of the petition for review. (7) The award passed by the Ombudsman shall remain suspended till the expiry of period of one month for filing review petition under sub-regulation (2) or till the review petition is disposed off by the Board. (8) The party so directed shall implement the award within 30 days of receipt of the order of the Board on review or within such period as may be specified by the Board in the order disposing off the review petition. (9) The Board may determine its own procedure consistent with principles of natural justice in the matter of disposing of review petition and may dismiss the petition in limine if it does not satisfy any of the grounds specified in sub-regulation (3).
21. Cost and interest (1) The Ombudsman or the Board, as the case may be, shall be entitled to award reasonable compensation along with interest including future interest till date of satisfaction of the award at a rate which may not exceed one percent per mensem. (2) The Ombudsman in the case of an award, or the Board in the case of order passed in petition for review of the award, as the case may be, may determine the cost of the proceedings in the award and include the same in the award or as the case may be, in the order. (3) The Ombudsman or the Board may impose cost on the complainant for filing complaint or any petition for review, which is frivolous. CHAPTER V IMPLEMENTATION OF THE AWARD 22. Consequences of non-implementation of the award (1) The award shall be implemented by the party so directed within one month of receipt of the award from the Ombudsman or an order of the Board passed in review petition or within such period as specified in the award or order of the Board. (2) If any person fails to implement the award or order of the Board passed in the review petition, without reasonable cause (a) he shall be deemed to have failed to redress investors grievances and shall be liable to a penalty under section 15C of the Act;
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(b) he shall also be liable for (i) an action under section 11 (4) of the Act ; or (ii) suspension or delisting of securities; or (iii) being debarred from accessing the securities market; or (iv) being debarred from dealing in securities; or dealing in securities; or (v) an action for suspension or cancellation of certificate of registration; or (vi) such other action permissible which may be deemed appropriate in the facts and circumstances of the case. Provided that no such order shall be passed without following the procedure laid down under the relevant rules or regulations. CHAPTER VI DISPLAY OF THE PARTICULARS OF THE OMBUDSMAN 23. Display of the particulars of the Ombudsman in office premises and documents (1) Every listed company or intermediary shall display the name and address of the Ombudsman as specified by the Board to whom the complaints are to be made by any aggrieved person in its office premises in such manner and at such place, so that it is put to notice of the shareholders or investors or unit holders visiting the office premises of the listed company or intermediary. (2) The listed company or intermediary in its offer document or clients agreement shall give full disclosure about the grievance redressal mechanism through Ombudsman under these regulations. (3) Any failure to disclose the grievance redressal mechanism through Ombudsman under sub-regulation (2) or any failure to display the particulars as per subregulation (1) shall attract the penal provisions contained in Section 15A of the Act. 24. Removal of Difficulties If any difficulty arises in giving effect to the provisions of these regulations, the Board may issue such directions or clarifications as it may think necessary or expedient for removing the difficulty. SCHEDULE FORM [Under regulation 14 of the Securities and Exchange Board of India (Ombudsman) Regulations, 2003] (FOR OFFICE USE ONLY) Complaint No. of year .. Date .. (TO BE FILLED UP BY THE COMPLAINANT) To The Securities and Exchange Board of India/ Ombudsman (*give address of the office of the Board or the address of the Ombudsman having jurisdiction )
148 Dear Sir,
SUPPLEMENT FOR SECURITIES LAWS & REGULATION OF FINANCIAL MARKETS Sub : Complaint against . (Name of the listed company / intermediary)
1. Name of the Complaint __________________________________________________ 2. Full Address of the Complaint _____________________________________________ ____________________________________________________________________ ____________________________________________________________________ Pin Code ________________________________ Phone No./Fax No. ________________________ 3. Complaint against (Name and Full Address of the Listed Company/Intermediaries) ____________________________________________________________________ Pin Code ________________________________ Phone No./Fax No. ________________________ 4. (a) Date of representation/complaint by the complainant to the listed company/ intermediary ________________________________________________________ The Listed Company/Intermediary ______________________________________ (Please enclose three copies of the representation) (b) Whether any reminder was sent by the complainant ? Yes/No (If yes, please enclose three copies of the reminder) 5. Subject-matter/grounds of the complaint (Please refer to regulation 14 of the Regulations) ____________________________________________________________________ 6. Details of the complaint (If space is not sufficient, please enclose separate sheet)
____________________________________________________________________
7. (a) Whether any reply (Within a period of one month after the listed company / intermediary concerned received the representation) has been received? Yes/No (If yes, please enclose three copies of the reply of the listed company / intermediary) (b) Whether the representation has been rejected ? Yes/No (If yes, please enclose three copies of the letter of rejection) (c) Whether the complainant has received any other final decision of the listed company / intermediary ? Yes/No (If yes, please enclose three copies of the letter of the listed company/intermediary conveying its final decision) 8. Nature of relief sought from the Ombudsman
____________________________________________________________________ (Please enclose three copies of documentary proof, if any, in support of your claim)
9. List of Documents Enclosed
(Please enclose three copies of all the documents)
SUPPLEMENT FOR SECURITIES LAWS & REGULATION OF FINANCIAL MARKETS 10. Declaration 1. I/We, the complainant/s herein declare that: (a) the information furnished herein above is true and correct; and
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(b) I/We have not concealed or misrepresented any fact stated in aforesaid columns and the documents submitted herewith. 2. The complaint is filed before expiry of period of one year reckoned in accordance with the provisions of the Regulations. 3. (a) The subject matter of the present complaint has never been brought before the Office of the Securities and Exchange Board of India /Ombudsman by me/ or by any one of us or by any of the parties concerned with the subject matter to the best of my/ our knowledge. The subject matter of the present complaint is not in respect of the same which was settled through the Office of the Securities and Exchange Board of India /Ombudsman in any previous proceedings. (b) The subject matter of the present complaint has not been decided by any forum/court/arbitrator. OR The subject matter of the present complaint is pending since.. (please mention the date when the matter was filed) before . (*Please mention the name of the forum/court/arbitrator before whom pending .) and the proceedings are likely to take longer time in its final adjudication as contemplated in the Regulations. 1. I/We authorise the listed company/intermediary to disclose any such information/ documents furnished by us to the Securities and Exchange Board of India / Ombudsman and disclosure whereof in the opinion of the Securities and Exchange Board of India/ Ombudsman is necessary and is required for redressal of any other complaint or our complaint. 2. I/We have carefully gone through the provisions of the Securities and Exchange Board of India (Ombudsman) Regulations, 2003. Yours faithfully
(Signature) (Complainant) NOMINATION / AUTHORISIATION (If the complainant wants to nominate/authorise his representative, not being a legal practitioner, to appear and make submissions on his behalf before the Securities and Exchange Board of India/ Ombudsman or to the Office of the Securities and Exchange Board of India/ Ombudsman, the following declaration should also be submitted.)
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1. I/We the above named complainant/s hereby nominate Shri/ Smt.. who is not a legal practitioner and whose address isas my/our REPRESENTATIVE in all proceedings of this complaint and confirm that any statement, acceptance or rejection made by him/her shall be binding on me/us. He/She has signed below in my presence. ACCEPTED (Signature of Representative) (Signature of Complainant)
SEBI (CENTRAL DATABASE OF MARKET PARTICIPANTS) REGULATIONS, 2003*

In exercise of the powers conferred by section 30 read with sections 11, 11A, 12 and 19 of the Securities and Exchange Board of India Act, 1992 (15 of 1992), the Board hereby makes the following Regulations, namely :CHAPTER I PRELIMINARY 1. Short title and commencement (1) These Regulations may be called Securities and Exchange Board of India (Central Database of Market Participants) Regulations, 2003. (2) These Regulations shall come into force on such date** as may be specified by the Board: Provided that different dates may be specified for different provisions of these regulations and any reference in any such provision to the commencement of these regulations 2 shall be construed as a reference to the commencement of that provision. 2. Definitions (1) In these Regulations, unless the context otherwise requires:(a) Act means the Securities and Exchange Board of India Act, 1992; (b) associate in relation to an intermediary or a listed company means a person: (i) who, directly or indirectly, by himself or in combination with his relatives exercises control over the intermediary or listed company or has a holding of not less than 15% in the paid up equity capital of the intermediary or the listed company; (ii) in respect of whom the intermediary or listed company directly or indirectly exercises control; (iii) whose director or partner is also a director or partner of the intermediary or listed company.
Explanation For the purposes of this clause

(i) Control means control as defined in clause (c) of sub-regulation (1) of regulation 2 of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997;
* ** Issued by SEBI vide Notification F. No. SEBI/LE/26/2003 dated 20-11-2003. 1-12-2003, except Regulations 5 and 6.
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SUPPLEMENT FOR SECURITIES LAWS & REGULATION OF FINANCIAL MARKETS (ii) director does not include a nominee director; (iii) person means a natural person, a company registered under the Companies Act, 1956, a body corporate, a partnership concern, a trust or society registered under the Societies Registration Act, 1860 or any other legal entity. (c) Board means the Securities and Exchange Board of India established under section 3 of the Act; (d) Central Database means the electronic representation and storage of information that may be created and maintained by a Designated Service Provider in respect of the persons who have been allotted unique identification numbers under these regulations; (e) Central Listing Authority means the Central Listing Authority established under regulation 3 of the Securities and Exchange Board of India (Central Listing Authority) Regulations, 2003; (f) Designated employee in relation to a listed company or a company which intends to get its securities listed means a designated employee within the meaning of the Explanation to clause 1.2 of Part A of Schedule I to the Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 1992; (g) Designated Service Provider means a person so designated by the Board to create and maintain the Central Database on such terms and conditions as may be agreed to between him and the Board and to perform such other functions under these regulations as may be delegated to him by the Board; (h) Intermediary means any person who is registered with the Board under section 12 of the Act, but does not include Foreign Institutional Investors and Foreign Venture Capital Investors; (i) Investor means an investor in securities and includes a Foreign Institutional Investor and a Foreign Venture Capital Investor; (j) Listed company means a company whose securities are listed on a recognised stock exchange and includes a public company which intends to get its securities listed on a recognized stock exchange; (k) Market participants means intermediaries, other entities, investors, listed companies and companies which intend to get their securities listed; (l) other entity means any recognised stock exchange, clearing corporation, approved intermediary under the Securities Lending Scheme, 1997, investor associations and includes any other person granted recognition by the Board, any person required to obtain any license or approval from any self- regulatory organization and any other person associated with the securities market in any manner as may be notified by the Board in the official gazette; (m) promoter means (1) any person or persons who are directly or indirectly in control of the company; or (2) any person or persons named as promoters in the offer document or in
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the shareholding pattern disclosed by the Company under provisions of the Listing Agreement, whichever is later; and includes, (A) where such person is an individual, (i) his spouse, parents, brothers, sisters or children; (ii) any company in which 26% or more of the equity share capital is held by him or by the persons mentioned in sub-clause (i) or any firm or Hindu Undivided Family in which he or any of the persons mentioned in sub-clause (i) is a partner or member; (iii) any company in which a company specified in sub-clause (ii) above, holds more than 50% of the equity share capital; (iv) any firm in which the aggregate of his holding and the holdings of the persons mentioned in sub-clause (i) is more than 50%; (B) where such person is a body corporate, (i) a subsidiary or holding company of that body corporate; (ii) any company in which the said body corporate holds 26% or more of the equity share capital; (iii) any company which holds 26% or more of the equity share capital of the said body corporate; (iv) any company in which a group of persons holds 26% or more of the equity share capital and that group of persons also holds 26% or more of the equity share capital in such body corporate; (v) any other body corporate under the same management as the said body corporate within the meaning of sub-section (1B) of section 370 of the Companies Act, 1956;
Explanation I : A Financial Institution, Scheduled Commercial Bank, Foreign Institutional Investor or Mutual fund shall not be deemed to be a promoter merely by virtue of its shareholding. Explanation II : A Financial Institution, Scheduled Commercial Bank or Foreign Institutional Investor shall be deemed to be a promoter of its subsidiary and of the mutual funds sponsored by it.
(n) recognised stock exchange means a stock exchange which has been granted recognition under section 4 of the Securities Contracts (Regulation) Act, 1956; (o) relative in relation to a natural person means his spouse, dependant children and dependant parents; (p) related persons means the persons specified in clause (b) of subregulation (1) of regulation 4 in respect of an intermediary or other entity and persons specified in clause (b) of regulation 5 in respect of a listed company or a company intending to get its securities listed; (q) Schedule means a Schedule annexed to these regulations; (r) securities means securities as defined in clause (h) of the Securities Contracts (Regulation) Act, 1956;
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SUPPLEMENT FOR SECURITIES LAWS & REGULATION OF FINANCIAL MARKETS (s) self-regulatory organization means an organization of intermediaries which is representing a particular segment of the securities market and formed as a company duly recognized with the Board and excludes a stock exchange; (t) specified intermediaries mean such intermediaries or other entities as may be specified* by the Board in the notification published in the official gazette pursuant to sub-regulation (1) of regulation 4; (u) specified investors mean such investors as may be specified by the Board in the notification published in the official gazette pursuant to subregulation (1) to regulation 6; (v) specified listed company means such companies as may be specified by the Board in the notification published in the official gazette pursuant to regulation 5; and, (w) unique identification number means the identification number generated in the Central Database for and allotted to each applicant under these regulations. (2) (a) Words and expressions used and not defined in these regulations shall have the meanings, if any, respectively assigned to them under the Act. (b) Words and expressions used and not defined either in these regulations or the Act, shall have the meanings, if any, respectively assigned to them in the Securities Contracts (Regulation) Act, 1956 or any statutory modification or re-enactment thereof. (c) Words and expressions used and not defined either in these regulations, or in the Act or in the Securities Contracts (Regulation) Act, 1956 shall have the meanings, if any, respectively assigned to them under the Companies Act, 1956, or any statutory modification or re-enactment thereof. CHAPTER II REQUIREMENT OF OBTAINING UNIQUE IDENTIFICATION NUMBERS
3. Unique Identification Numbers for market participants Every specified intermediary, other entity, specified listed company and specified investor shall make application for allotment of unique identification numbers for itself and for its related persons in accordance with these regulations. 4. Specified intermediary and other entity to obtain unique identification numbers (1) On and from such date as may be notified by the Board in the official gazette, no specified intermediary or other entity shall act as such, unless (a) it has obtained a unique identification number from the Designated Service Provider; and, (b) the following related persons have been allotted unique identification numbers by the Designated Service Provider: (i) its principal officer and personnel engaged in the operational activities of
* Refer Notification at Serial No. I and II given at the end of this Regulation.
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the intermediary for which a certificate of registration is required or taken from the Board; (ii) its promoters, other than the Central or State Government or any statutory authority; (iii) its directors, in case it is a body corporate; (iv) its partners, in case it is a partnership firm; (v) its associates and their directors; (vi) the sponsors, trustees, asset management companies and asset managers, where applicable; (vii) its proprietor, where applicable; and, (viii) relatives of the natural persons mentioned in sub-clauses (i) to (vii) above. Provided that such person may continue to act as an intermediary or other entity if it has made applications for allotment of unique identification number under regulation 7 before the notified date and where such application has been rejected by the Board, an appeal has been filed and such appeal is pending for disposal. (2) Every certificate of registration issued to a specified intermediary by the Board after commencement of these regulations shall be subject to the condition that prior to commencement of its activities, the intermediary shall obtain a unique identification number for itself and for the persons mentioned in clause (b) of sub-regulation (1) in accordance with these regulations. (5) Specified listed company to obtain unique identification number On and from such date as may be notified by the Board in the official gazette, no specified listed company or a company which intends to get its securities listed shall issue any securities which are proposed to be listed on a recognized stock exchange, unless (a) it has obtained a unique identification number from the Designated Service Provider; and, (b) the following related persons have been allotted unique identification numbers by the Designated Service Provider : (i) its promoters, other than the Central or State Government or any statutory authority; (ii) its directors and officers; (iii) its designated employees; (iv) its subsidiaries, its holding company and the holding companys subsidiaries, if any; (v) its associates and their directors; and, (vi) relatives of the natural persons mentioned in sub-clauses (i) to (iii) and (v) above. Provided that a specified listed company may, make an issue of securities which are proposed to be listed in any recognized stock exchange if it has made an application for allotment of unique identification number before the notified date, till the disposal of the application and where an appeal has been filed, till such appeal is disposed of.
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6. Specified investors to obtain unique identification numbers (1) On and from such date as may be notified by the Board in the Official Gazette, no specified investor, not being a body corporate, shall buy, sell or deal in any securities which are listed on any recognized stock exchange or in units of a mutual fund or a collective investment scheme or subscribe to securities which are proposed to be listed in any recognized stock exchange or units of a mutual fund or a collective investment scheme unless he has been allotted a unique identification number. (2) On and from such date as may be notified by the Board in the Official Gazette, no specified investor being a body corporate shall buy, sell or deal in any securities which are listed on any recognized stock exchange or in units of a mutual fund or a collective investment scheme or subscribe to securities which are proposed to be listed in any recognized stock exchange or units of a mutual fund or a collective investment scheme unless such specified investor, its promoters and directors have been allotted unique identification numbers. (3) On and from such date as may be notified by the Board in the Official Gazette, no specified investor, being a Foreign Institutional Investor, a sub-account or a Foreign Venture Capital Investor shall buy, sell or deal in any securities which are listed on any recognized stock exchange or in units of a mutual fund or a collective investment scheme or subscribe to securities which are proposed to be listed in any recognized stock exchange or units of a mutual fund or a collective investment scheme unless it has been allotted a unique identification number. (4) No intermediary shall, after such specified date, deal in or allot such securities on behalf of or to a specified investor unless the investor has been allotted a unique identification number. (5) Nothing in this regulation shall apply to any specified investor who has applied for allotment of a unique identification number under regulation 9 before the notified date, till the disposal of his application or, where he has filed an appeal, till the disposal of the appeal, as the case may be. 7. Application by specified intermediary or other entity Every specified intermediary or other entity shall make an application in accordance with sub-regulation (1) of regulation 12 to the Designated Service Provider for allotment of unique identification numbers for itself and for its related persons. 8. Application by specified listed company (1) Every specified listed company shall make an application to the Designated Service Provider in accordance with sub-regulation (2) of regulation 12 for allotment of unique identification numbers for itself and for its related persons. (2) Every public company specified in the notification issued under regulation 5 and which intends to get its securities listed in a recognized stock exchange shall make an application to the Designated Service Provider for allotment of unique identification numbers for itself and for the related persons mentioned in clause (b) of regulation 4 simultaneously with the filing of the offer document with the Central Listing Authority.
SUPPLEMENT FOR SECURITIES LAWS & REGULATION OF FINANCIAL MARKETS 9. Application by specified investor
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Every specified investor shall make an application to the Designated Service Provider in accordance with sub-regulation (3) of regulation 12 for allotment of a unique identification number. 10. Person holding a unique identification number not required to obtain another unique identification number Notwithstanding anything contained in these regulations, no person shall be obliged to apply for or be allotted another unique identification number, if he already holds a unique identification number allotted to him under these regulations in any other capacity. Provided that where any person holding a unique identification number subsequently becomes an intermediary or a listed company or a related person of any of them, he shall disclose such fact to the Designated Service Provider. 11. Maintenance of records The Designated Service Provider shall maintain such books, records and documents, in such manner and for such period as may be specified by the Board. CHAPTER III GRANT AND REVOCATION OF UNIQUE IDENTIFICATION NUMBERS 12. Format of application (1) Every application made by a specified investor or a related person of a specified intermediary or specified listed company being a natural person, under regulation 7, 8 or 9, as the case may be, shall be in Form A specified in the Schedule and shall be accompanied with a fee as specified in the notifications issued under regulations 4, 5 or 6, as the case may be. (2) Every application made by a specified listed company, specified intermediary, a related person of any of the above or a specified investor, not being a natural person, under regulation 7, 8 or 9, as the case may be, shall be in Form B specified in the Schedule and shall be accompanied with a fee as specified in the notifications issued under regulations 4, 5 or 6, as the case may be. 13. Procedure on receipt of application (1) Upon receipt of an application for allotment of unique identification number under these regulations, the Designated Service Provider shall, if the application is not found defective, allot to the applicant a unique identification number within thirty days of receipt of the application. (2) Where it is found that any such application is defective, the Designated Service Provider may intimate the defect to the applicant and give it an opportunity to rectify the defect within a period of fifteen days from the date of such intimation or within such further period which the Board may allow on a request made in this behalf. (3) Where any defect in the application is intimated under sub-regulation (2) and the
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SUPPLEMENT FOR SECURITIES LAWS & REGULATION OF FINANCIAL MARKETS defect is not rectified by the applicant within the said period of fifteen days or, as the case may be, further period allowed under sub-regulation (2), then, notwithstanding anything contained in any other provision of this Chapter, Designated Service Provider shall refer the application to the Board, which may either direct the Designated Service Provider to allot the unique identification number or reject the application after giving an opportunity to the applicant to make representations.
14. Criteria to determine specified intermediaries, specified listed companies and specified investors For the purposes of specifying the intermediaries, listed companies or investors under sub-regulation (1) of regulation 4 or regulation 5 or subregulation (1) of regulation 6, the Board may take into consideration the following factors: (a) with regard to intermediaries or other entities their kind and the nature of functions performed by them, their networth and other similar factors; (b) with regard to listed companies or companies which intend to get their securities listed their paid up capital, the number of their public shareholders, the volume of trading in their securities, the proposed issue size and other similar factors; and, (c) with regard to investors the quantum of investment made by them in the securities of any listed company or their volume of trading in securities in a particular financial year. 15. Duty not to make false statements and revocation of unique identification number (1) No person shall make a false statement or misrepresent any fact in any application made to the Designated Service Provider under these regulations. (2) Every application made to the Designated Service Provider under these regulations and every intimation made under regulation 17 shall be certified to be true and correct : (a) in case of an intermediary, by its whole time director, managing partner, managing trustee or sole proprietor, as the case may be, and by its compliance officer; (b) in case of a listed company, by its whole time director and its company secretary or auditor; and, (c) in case of an investor, by him. 16. Revocation of unique identification number (1) Where it is found that the unique identification number was obtained by a person through fraud or misrepresentation or was allotted to him under a mistake, the Board may, without prejudice to other action that it may take under any law for the time being in force and after giving him an opportunity of making representations, revoke the unique identification number allotted to him or to the related persons. (2) Upon revocation of the unique identification number of a person, the provisions of
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these regulations shall apply from the date of revocation, as if no unique identification number was allotted to him. (3) Every order passed by the Board under these regulations shall be in writing. CHAPTER IV CONTINUING OBLIGATIONS 17. Duty to intimate changes (1) Every person who has been allotted a unique identification number under these regulations shall intimate the changes if any, in the particulars submitted by him in the application, to the Designated Service Provider, in such electronic or other manner as may be specified by the Board, within thirty days of occurrence of the change. (2) Every intermediary shall exercise due diligence to satisfy itself that its clients, being specified investors, have complied with sub-regulation (1). 18. Duty to seek unique identification numbers for newly added related persons (1) Every specified intermediary and other entity shall within thirty days of any person becoming a related person, ensure that such person has been allotted or has applied for a unique identification number. (2) Every specified listed company shall within thirty days of any person becoming a related person, ensure that such person has been allotted or has applied for a unique identification number. CHAPTER V ACTION IN CASE OF VIOLATION 19. Action for acting, dealing etc. without obtaining unique identification number Any person who issues any security or buys, sells or deals in any securities in contravention of these regulations shall be liable for (a) action under sub-section (4) of section 11 of the Act; (b) delisting of securities; (c) being debarred from acting in any capacity in any security market related institution; (d) such other action as may be deemed appropriate by the Board in the facts and circumstances of the case. Provided that no such action shall be taken without following the procedure laid down under the relevant rules or regulations. 20. Action for giving false statement Any person who makes any false statement or misrepresents any fact in any application or other document submitted to the Designated Service Provider shall, without prejudice to any action which may be taken under section 24 of the Act by the Board, be liable for action under section 15HB of the Act.
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21. Action for failure to intimate changes Any person who being required to do so, fails to intimate changes as required in regulation 15 shall be liable for action under clause (b) of section 15A of the Act. 22. Action for failure to make application for newly added related persons Any intermediary or listed company who fails to ensure compliance with regulation 16 shall be liable for action under section 15HB of the Act.
SUPPLEMENT FOR SECURITIES LAWS & REGULATION OF FINANCIAL MARKETS THE SCHEDULE [See regulation 12 of SEBI [Central Database of Market Participants] Regulations, 2003] FORM A Application Form / Form for intimating changes Natural Persons
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This application has three parts, Part A, B and C. Part B is to be filled in by employee of an Intermediary registered with SEBI. (For use by POS only)
TIN : Data Uploaded on: __/ __/ ____
Application Fee : Rs. ______ (Demand drafts only)

Drawn on Bank DD No. Payable at
Please fill in BLOCK LETTERS. Please tick relevant boxes wherever option is provided. FIRST APPLICATION AMENDMENT Unique identification number (Please provide in case of amendment only) PART A PERSONAL DETAILS Gender : First Name Middle name Last name (Name as written above will appear on the identity card) Fathers/ Husbands Name Mr. Mothers Name* PAN No. Mrs. Male Female Date of Birth : Day Mr./ Mrs./ Ms. Month Year
Note : Please provide copy of PAN Card
* Please write First name only. For example, if mothers full name is Girija Ramlal Mehra, please write only Girija Address: House No./Apt Name/Block No. Road/Street/Lane Area City/Post/Taluka PIN
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STD Code
Telephone Number
I hereby submit copies of the following documents as proof of my identity and address. (Original documents should be brought for verification to POS at the time of submitting application form) Proof of Identity
Passport Driving License PAN Card with Photograph Voter Id Photo Identity Card issued by Employer registered under MAPIN
Please provide details of document submitted
Document No.
Place of issue
Date of Issue
d Proof of Address
Passport Flat Maintenance Bill Voter Id Telephone Bill Driving License Electricity Bill Bank Passbook
d m m y y y y
Rent Agreement
Ration Card Insurance Policy
Certificate issued by employer holding unique identification number
Please provide details of document submitted
Document No.
Place of issue
Date of Issue
d d m m y y y y Declaration I have not applied for unique identification number earlier and I am applying for the first time. OR I have applied for registration earlier and unique identification number has been allotted to me. This application is for intimation of changes in the information given earlier. I declare that I am applying for unique identification number in my capacity as____________. I certify that the information given by me in this form is true and correct. Signature : Date : Place : Signature of Applicant (To be signed in black ink in presence of Registration Officer) Information given above has been verified against original documents presented before me [Signature of Registration Officer]
SUPPLEMENT FOR SECURITIES LAWS & REGULATION OF FINANCIAL MARKETS Acknowledgement PART - I FIRST APPLICATION AMENDMENT Unique identification number
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(Please provide in case of amendment only)

(For use by POS only)
TIN : We acknowledge receipt of the application form together with fee. The identity card can be collected on date mentioned below. d Date: PART B TO BE FILLED IN BY DIRECTORS / PARTNERS / PROPRIETORS / PERSONNEL OF SPECIFIED INTERMEDIARIES Employers unique identification number Employee Joining Date Qualifications Qualifications Issuing Authority Valid upto (Date) (If Applicable) Day Month Year d m m y y y y POS Seal and Signature
Month Training Information Name of Training Program Conducted by From Date
Year To Date
d d m m yyyy ddmmyyyy
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SUPPLEMENT FOR SECURITIES LAWS & REGULATION OF FINANCIAL MARKETS Whether this person is appointed as Compliance Officer ? Yes / No If Yes, please provide Intermediary Type(s)* (1) (2) (3)
* Intermediary type means the type of registration obtained from SEBI. For e.g. Merchant Banker - Category I or Registrar & Transfer Agent- Category II. Please mention complete description if intermediary type is stockbroker/sub-broker. For e.g. Stock Broker XYZ Stock Exchange or Sub-broker XYZ Stock Exchange.
Declaration: On behalf of __________________________________________, we hereby confirm that we have verified the details given under Part A and Part B with relevant original documents and are satisfied that the details furnished are in accordance with the documents verified. Employers Authorised Signatory Name Designation Compliance Officer Whole time Director PART C Form for establishing Association / Dissociation Signature
Note :
(1) This form is to notify association/ dissociation between individuals and corporates in various roles as defined under SEBI (Central Database of Market Participants) Regulations, 2003. This form has to be submitted after the Unique ID No. has been allotted to Company/Intermediary. (2) Please submit separate forms for association and dissociation. Request For Association Name of the Applicant Unique identification number (not to be filled if submitted with Part A & Part B) Request For Dissociation
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I notify the association/dissociation between me and the entities listed here below, as per the details given below. Name of the Body Corporate / other person Unique identification number of the Body Corporate Relationship (Refer Note 1 & 2) Type of Intermediary (Refer Note 3)
Notes:
1. Relationships specific to specified Listed Company are Associate, Compliance Officer, Director, Managing Director/Whole Time Director, Promoter, Designated Employee, Subsidiary/Holding Company and Relatives of above. 2. Relationships specific to Intermediary are - Associate/Asset Management Company, Director, Managing Director/Whole Time Director/Partner/Proprietor, Promoter/Sponsor, Personnel, Compliance Officer, Office Bearer of Investor Association and Relatives of above. 3. Please mention Type of Intermediary if the role selected is Compliance Officer of Intermediary. 4. Please attach additional sheets containing the details in the above stated format if required. Additional sheet should be duly signed. Declaration I declare and state that the information given by me in this form is true and correct. I undertake to inform the designated service provider of any changes in the information provided by me. Date : Place : Signature of Applicant Acknowledgement PART C Form for Establishing Association / Dissociation Request For Association TIN : Unique identification number
(not to be filled if submitted with Part A & Part B)
Request For Dissociation
We acknowledge the receipt of application form. The relationship as applied for will be established by ___/___/______ Date : Signature of Registration Officer and Seal
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SUPPLEMENT FOR SECURITIES LAWS & REGULATION OF FINANCIAL MARKETS FORM B Application Form / Form for intimating changes Bodies Corporate, Intermediaries and other persons
[Note: All persons mentioned in regulation 12(2) shall fill up Part A & Part C. If applicant is specified intermediary, it shall fill up Part A, B & C of this form] (For use by POS only) TIN ID : Data Uploaded on : __/ __/ ____ Application Fee _____ Rs. _____ (Demand drafts only) Drawn on Bank DD No. PART A FIRST APPLICATION AMENDMENT Unique identification number (Please provide in case of amendment only) Organisation Name (Name written here will appear on the identity card) Short Name Previous Names (if any) (1) (2) (3) (4) (5) d d m m y y y y Effective Date Payable at
Form of Organisation as on the date of this application (Please tick only one)
Public Limited Company Scheduled Commercial Bank Registered Trust Registered Partnership Firm Registered Society Private Limited Company Urban Bank Unregistered Trust Unregistered Partnership Firm Unregistered Society Company Limited by Guarantee Co-operative Bank Proprietorship Non-Banking Finance Company
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Note : Entities registered with the Registrar of Companies should tick any of the company options or the NBFC option.
Registration No. Registration/ Formation Date d State of Registration Head Office City d m m y y y y
Note :
(i) Copy of the registration document/partnership deed/trust deed may be submitted. (ii) Original documents will be verified by Registration Officer at the time of submitting application form. Sr. 1 2 3 4 Address for Communication : (Mailing address to be used by SEBI) House No./Apt Name/Block No : Road/Street/Lane : Area : City/Post/Taluka : Telephone : STD Code Proof of Address (Please Tick) Copy of Income Tax Return Bank Statement Leave & License Agreement Sale Agreement Telephone Number Pin Stock Exchange on which the company is listed (if applicable)
ROC Registration Certificate Please provide details Document No. Place of Issue of document submitted Document Date
d d m m y y y y
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SUPPLEMENT FOR SECURITIES LAWS & REGULATION OF FINANCIAL MARKETS Declaration
On behalf of ______________________________________________________, we hereby confirm the following: We have not applied for unique identification number under this application earlier and we are applying for the first time. OR We have applied for registration earlier and unique identification number has been allotted to us. This application is for intimation of changes in the information given earlier.
We declare that this application is made in the capacity of the applicant as a____________. We certify that the information given in this form is true and correct. Authorised Signatory
Name
Designation
Company Secretary/ Auditor Whole Time Director/ Managing Trustee/ Managing Partner/ Proprietor
Signature
Place : Date : Acknowledgement Part A FIRST APPLICATION AMENDMENT Unique identification number (Please provide in case of amendment only) (For use by POS only) TIN : We acknowledge the receipt of application form together with fee. Please collect the identity card on date mentioned below.
m m y
Date :
POS Seal and Signature
SUPPLEMENT FOR SECURITIES LAWS & REGULATION OF FINANCIAL MARKETS PART B DETAILS TO BE PROVIDED IF THE APPLICANT IS A SPECIFIED INTERMEDIARY
Networth (Rs. in lakh rounded off to the nearest lakh)
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As on year ended __/ __/ ____ Intermediary Type # SEBI Registration No. SEBI Registration Date
d #
m m y
Please write from the list below. In case space is not sufficient, please attach additional sheets containing the details in the above stated format. Additional sheet may be printed on letterhead of the organisation and duly signed. In case of multiple SEBI registrations, please mention each separately.
Sr. Type of Intermediary 1. Banker to Issue

2. Clearing Corporation
Sr. Type of Intermediary 12. Portfolio Manager

13. Registrar & Transfer Agent Category - I
3. Collective Investment Scheme 14. Registrar & Transfer Agent Category - II 4. Credit Rating Agency 5. Custodian 6. Debenture Trustee 7. Depository 8. Depository Participant 9. Investor Association (SEBI Recognised) 10. Merchant Banker Category I 11. Mutual Fund * ** In case of Stock Brokers, please mention in the following format Stock Broker XYZ Stock Exchange In case of Sub- Brokers, please mention in the following format Sub Broker XYZ Stock Exchange 15. SLS Approved Intermediary 16. Stock Broker * 17. Stock Exchange 18. Sub Broker ** 19. Underwriter 20. Venture Capital Fund
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SUPPLEMENT FOR SECURITIES LAWS & REGULATION OF FINANCIAL MARKETS Declaration
On behalf of ______________________________________________________, we hereby declare and state that the information given in this form is true and correct. Authorised Signatory
Name
Designation
Compliance Officer Whole Time Director (for use by POS only)
Signature
It is hereby confirmed that the above information is verified with the original documents submitted and found to be in accordance with such documents. Signature of Registration Officer: Seal : PART C Form for Establishing Association / Dissociation [Note : (1) This form is to notify association/ dissociation between intermediary/ listed company/investor with related persons and such other persons as is required under these regulations. This form has to be submitted after the unique identification number has been allotted to Company/Intermediary. (2) Please submit separate forms for association and dissociation] Request For Association Name of the Applicant Nature of the Applicant Unique identification number We notify the association/dissociation between our organisation and the entities listed here below, as per the details given below. NAME Unique ID No. Relationship (Refer Note 1 & 2) Type of Intermediary (Refer Note 3) Intermediary / Listed Company / Other Corporate Request For Dissociation
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Notes :
1. Relationships specific to specified Listed Company are Associate, Compliance Officer, Director, Managing Director/Whole Time Director, Promoter, Designated Employee, Subsidiary/Holding Company and Relatives of above. 2. Relationships specific to specified Intermediary are - Associate/Asset Management Company, Director, Managing Director/Whole Time Director/Partner/ Proprietor, Promoter/Sponsor, Personnel, Compliance Officer, Office Bearer of Investor Association and Relatives of above. 3. Please mention Type of Intermediary if the role selected is Compliance Officer of Intermediary. A complete list of intermediaries is given in Part B of the application form. 4. Please attach additional sheets containing the details in the above stated format if required. Additional sheet may be printed on letterhead and duly signed. Authorised Signatory
Name
Designation
Compliance Officer Whole time Director Acknowledgement PART C Form for Establishing Association / Dissociation Request For Association
Signature
Request For Dissociation
Unique identification number We acknowledge the receipt of application form. The relationship as applied for will be established by ___/___/______ Date : Signature of Registration Officer and Seal I. Notification under regulation 1(2) and 4(1) of the SEBI (Central Database of Market Participants Regulations, 2003* In exercise of the powers conferred by sub-regulation (2) of regulation 1 and subregulation (1) of regulation 4 of the Securities and Exchange Board of India (Central Database of Market Participants) Regulations, 2003 (hereinafter referred to as the said regulations) and having taken into consideration the factors mentioned in regulation 14, the Board hereby specify :(a) the 1st day of December, 2003 as the date of commencement of all provisions of the said regulations except regulations 5 and 6 thereof;
* Issue by SEBI vide Notification F. No. SEBI/LE/03/22/75, dated 25-11-2003.
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SUPPLEMENT FOR SECURITIES LAWS & REGULATION OF FINANCIAL MARKETS (b) intermediaries and other entities mentioned in the Annexure hereto as 'specified intermediaries' for the purposes of clause (u) of sub-regulation (1) of regulation 2 of the said regulations; (c) the 31st day of March, 2004 as the notified date for the purpose of subregulation (1) of regulation 4 for such specified intermediaries; (d) that the fee payable by the specified intermediaries and their related persons under sub-regulation (1) or (2) of regulation 12 shall be a sum of rupees three hundred for each application, payable by a demand draft drawn in favour of 'Securities and Exchange Board of India'. Annexure (a) Approved intermediaries under the Securities Lending Scheme, 1997 (b) Bankers to an issue (c) Collective investment schemes (d) (e) (f) (g) (h) (i) (j) (k) (l) (m) (n) (o) (p) Credit rating agencies Custodians of securities Debenture Trustees Depositories Depository participants Investor association Merchant bankers Mutual funds Portfolio managers Registrars and share transfer agents Stock exchanges Underwriters Venture capital funds II. Specified intermediary and other entity to obtain unique identification numbers Specified intermediaries*
In exercise of the powers conferred by sub-regulation (1) of regulation 4 of the Securities and Exchange Board of India (Central Data base of Market Participants) Regulations, 2003 (hereinafter referred to as the said regulations) and having taken into consideration the factors mentioned in regulation 14, the Board hereby specify :(a) stock brokers within the meaning of clause (e) of rule 2 of the Securities and Exchange Board of India (Stock Brokers and Sub-brokers) Rules, 1992 as "specified intermediaries" for the purposes of clause (a) of sub-regulation (1) of regulation 2 of the said regulations; (b) the 31st day of March, 2004 as the notified date of the purpose of subregulation (1) of regulation 4 for such specified intermediaries.
* Issued by SEBI vide Notification F. No. SEBI/LE/03/23142, dated 9-12-2003.
UNLISTED PUBLIC COMPANIES (PREFERENTIAL ALLOTMENT) RULES, 2003*

In exercise of the powers conferred by sub-section (1A) of section 81 of the Companies Act, 1956 read with section 642 of the said Act, the Central Government hereby makes the following rules, namely:1. Short title and commencement (1) These rules may be called Unlisted Public Companies (Preferential Allotment) Rules, 2003. (2) They shall come into force on the date of their publication in the official gazette. 2. Applicability These rules shall be applicable to all unlisted public companies in respect of preferential issue of equity shares, fully convertible debentures, partly convertible debentures or any other financial instruments, which would be convertible into or exchanged with equity shares at a later date. 3. Definitions (1) Preferential Allotment includes issue of shares on preferential basis and/or through private placement made by a company in pursuance of a resolution passed under sub-section (1A) of section 81 of the Companies Act, 1956 and issue of shares to the promoters and their relatives either in public issue or otherwise. (2) Promoter means (a) the person or persons who are in over-all control of the company; and (b) the person or persons who hold themselves as promoters.
Explanation : Where a promoter of a company is a body corporate, the promoters of that body corporate shall also be deemed to be promoters of the company.
(3) control shall include the right to appoint majority of the directors or to control the management or policy decisions exercisable by a person or persons acting individually or in concert, directly or indirectly, including by virtue of their shareholding or management rights or shareholders agreements or voting agreements or in any other manner. 4. Special Resolution No issue of shares on a preferential basis can be made by a company unless authorized by its articles of association and unless a special resolution is passed by the
* Issued vide Notification No. GSR 922(E) dated 4.12.2003.
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members in a General Meeting authorizing the Board of Directors to issue the same. The special resolution shall be acted upon within a period of 12 months. 5. Pricing Where warrants are issued on a preferential basis with an option to apply for and get the shares allotted, the issuing company shall determine before hand the price of the resultant shares. 6. Disclosures The explanatory statement to the notice for the general meeting as required by section 173 of the Companies Act, 1956 shall contain the following particulars: (a) the price or price band at which the allotment is proposed; (b) the relevant date on the basis of which price has been arrived at; (c) the object/s of the issue through preferential offer; (d) the class or classes of persons to whom the allotment is proposed to be made; (e) intention of promoters/directors/key management persons to subscribe to the offer; (f) shareholding pattern of promoters and others classes of shares before and after the offer; (g) proposed time within which the allotment shall be completed; (h) whether a change in control is intended or expected. 7. Audit Certificate In case of every issue of shares/warrants/fully convertible debentures/partly convertible debentures or other financial instruments with conversion option, the statutory auditors of the issuing company / company secretary in practice shall certify that the issue of the said instruments is being made in accordance with these Rules. Such certificate shall be laid before the meeting of the shareholders convened to consider the proposed issue.
UNLISTED COMPANIES (ISSUE OF SWEAT EQUITY SHARES) RULES, 2003*

In exercise of the powers conferred by proviso to sub-section (1) of section 79A of the Companies Act, 1956 (1 of 1956) read with sub-section (1) of section 642 of the said Act, the Central Government hereby makes the following rules, namely :1. Short title and commencement (1) These Rules may be called the Unlisted Companies (Issue of Sweat Equity Shares) Rules, 2003. (2) They shall come into force on the date of their publication in the Official Gazette. 2. Definitions In these rules, unless otherwise defined,(i) Asset means a resource controlled by the company and from which future economic benefits are expected to flow to the company; (ii) employee means :(a) a permanent employee of the company working in India or out of India; or (b) a director of the company, employed as a whole time director or executive director of a company; (iii) intangible Asset means an identifiable non-monetary asset, without physical substance, held for use in the production or supply of goods or services, for rental to others, or for administrative purposes; (iv) share price means price of a share on a given date arrived on the net worth basis; (v) value addition means anticipated economic benefits derived by the enterprise from expert and/or professional for providing know-how or making available rights in the nature of intellectual property rights, by such person to whom sweat equity is issued for which the consideration is not paid or included in (a) the normal remuneration payable under the contract of employment, in the case of an employee and/or (b) monetary consideration payable under any other contract, in the case of non-employee.
Issued vide Notification No. GSR 922(E) dated 4.12.2003.
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176 3. Applicability
These Rules shall be applicable to issue of sweat equity shares by all unlisted companies. 4. Special resolution (1) For the purpose of passing a special resolution under clause (a) of subsection (1) of section 79A of the Companies Act, 1956 (1 of 1956), the explanatory statement to be annexed to the notice for the general meeting pursuant to section 173 of the said Act shall contain particulars as specified below. (i) the date of the meeting at which the proposal for issue of sweat equity shares was approved by the Board of Directors of the company; (ii) the reasons/justification for the issue; (iii) the number of shares, consideration for such shares and the class or classes of persons to whom such equity shares are to be issued; (iv) the value of the sweat equity shares alongwith valuation report/ basis of valuation and the price at which the sweat equity shares will be issued; (v) the names of persons to whom the equity will be issued and the persons relationship with the company; (vi) ceiling on managerial remuneration, if any, which will be affected by issuance of such equity; (vii) a statement to the effect that the company shall conform to the accounting policies specified by the Central Government; and (viii) diluted earning per share pursuant to the issue of securities to be calculated in accordance with the Accounting Standards specified by the Institute of Chartered Accountants of India. (2) Approval of shareholders by way of separate resolution in the general meeting shall be obtained by the company in case of grant of shares to identified employees and promoters, during any one year, equal to or exceeding 1% of the issued capital (excluding outstanding warrants and conversion) of the company at the time of grant of the sweat equity shares. 5. Register of shares The company shall maintain a Register of Sweat Equity Shares issued under section 79A in the Form specified in Schedule annexed to these rules. 6. Restriction on issue of sweat equity shares The company shall not issue sweat equity shares for more than 15% of total paid up equity share capital in a year or shares of the value of 5 crores of rupees, whichever is higher except with the prior approval of the Central Government. 7. Disclosure in the Directors Report The Board of Directors, shall, inter alia, disclose either in the Directors Report or in the annexure to the Directors Report, the following details of issue of sweat equity shares :(a) number of shares to be issued to the employees or the directors;
SUPPLEMENT FOR SECURITIES LAWS & REGULATION OF FINANCIAL MARKETS (b) conditions for issue of sweat equity shares; (c) the pricing formula;
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(d) the total number of shares arising as a result of issue of sweat equity shares; (e) money realised or benefit accrued to the company from the issue of sweat equity shares; (f) diluted Earnings Per Share (EPS) pursuant to issuance of sweat equity shares. 8. Pricing of Sweat Equity Shares The price of sweat equity shares to be issued to employees and directors shall be at a fair price calculated by an independent valuer. 9. Issue of Sweat Equity Shares for consideration other than cash Where a company proposes to issue sweat equity shares for consideration other than cash, it shall comply with following : (a) the valuation of the intellectual property or of the know-how provided or other value addition to consideration at which sweat equity capital is issued, shall be carried out by a valuer; (b) the valuer shall consult such experts, as he may deem fit, having regard to the nature of the industry and the nature of the property or the value addition; (c) the valuer shall submit a valuation report to the company giving justification for the valuation; (d) a copy of the valuation report of the valuer shall be sent to the shareholders with the notice of the general meeting; (e) the company shall give justification for issue of sweat equity shares for consideration other than cash, which shall form part of the notice sent for the general meeting; and (f) the amount of Sweat Equity shares issued shall be treated as part of managerial remuneration for the purposes of sections 198, 309, 310, 311 and 387 of the Companies Act, 1956 if the following conditions are fulfilled: (i) the Sweat Equity shares are issued to any director or manager; and, (ii) they are issued for non-cash consideration, which does not take the form of an asset which can be carried to the balance sheet of the company in accordance with the relevant accounting standards. 10. Lock-in of sweat equity shares Sweat equity shares issued to employees or directors shall be locked in for a period of three years from the date of allotment. 11. Certificate from auditors In the case of every company that has allotted shares under these Rules, the Board of Directors shall at each annual general meeting place before the shareholders a certificate
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from the auditors of the company/ practising company secretary that sweat equity shares have been allotted in accordance with the resolution of the company in the general meeting and these Rules. 12. Accounting policies (1) Where the sweat equity shares are issued for a non-cash consideration, such non-cash consideration shall be treated in the following manner in the books of account of the company: (a) where the non-cash consideration takes the form of a depreciable or amortizable asset, it shall be carried to the balance sheet of the company in accordance with the relevant accounting standards; or (b) where clause (a) is not applicable, it shall be expensed as provided in the relevant accounting standards. (2) In respect of sweat equity shares issued during accounting period, the accounting value of sweat equity shares shall be treated as another form of compensation to the employee or the director in the financial statement of the company. SCHEDULE REGISTER OF SWEAT EQUITY SHARES (Pursuant to Rule 5) The register of sweat equity shares issued by the company to be kept in the following format: S.No. 1 Folio No. / Certificate No. 2 Date of passing of resolution 3 Date of issue of sweat equity shares 4
Name of the allottee 5
Status of the allottee - whether director or employee 6
Reference to entry Number of sweat in register of equity shares members issued 7 8
Face value of the share 9
Price at which Total consideration shares issued paid by employee/director 10 11
Lock in period till which date 12
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SECONDARY MARKET FOR CORPORATE DEBT SECURITIES*

1. Companies have been issuing debt securities on private placement basis from time to time. In order to provide greater transparency to such issuances and to protect the interest of investors in such securities, it has been decided that any listed company making issue of debt securities on a private placement basis and listed on a stock exchange shall be required to comply with the following:1.1 The company shall make full disclosures (initial and continuing) in the manner prescribed in Schedule II of the Companies Act, 1956, SEBI (Disclosure and Investor Protection) Guidelines, 2000 and the Listing Agreement with the exchanges. However, if the privately placed debt securities are in standard denomination of Rs.10 Lakhs, such disclosures may be made only through web sites of the stock exchange where the debt securities are sought to be listed. The debt securities shall carry a credit rating of not less than investment grade from a Credit Rating Agency registered with the Board. The company shall appoint a debenture trustee registered with SEBI in respect of the issue of the debt securities. The debt securities shall be issued and traded in demat form. The company shall sign a separate listing agreement with the exchange in respect of debt securities and comply with the conditions of listing. All trades with the exception of spot transactions, in a listed debt security, shall be executed only on the trading platform of a stock exchange. The trading in privately placed debts shall only take place between Qualified Institutional Investors (QIBs) and High Networth Individuals (HNIs), in standard denomination of Rs.10 lakhs. The requirement of Rule 19(2)(b) of the Securities Contract (Regulation) Rules, 1957 will not be applicable to listing of privately placed debt securities on exchanges, provided all the above requirements are complied with. If the intermediaries registered with SEBI associate themselves with the issuance of private placement of unlisted debt securities, they will be held accountable for such issues. They will also be required to furnish periodical reports to SEBI in such format as may be decided by SEBI.
1.2 1.3 1.4 1.5 1.6 1.7
1.8
1.9
2. The stock exchanges are directed to: 2.1

*
make necessary amendments to the listing agreement, bye-laws, rules and
Issued by SEBI vide SEBI/MRD/SE/AT/36/2003/30/09 dated 30-09-2003.
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SUPPLEMENT FOR SECURITIES LAWS & REGULATION OF FINANCIAL MARKETS regulations for the implementation of the above decision immediately, as may be applicable. 2.2 bring the provisions of this circular to the notice of the listed companies/member brokers/clearing members of the Exchange and also to disseminate the same on the website for easy access to the investors; and communicate to SEBI, the status of the implementation of the provisions of this circular in Section II, item no. 13 of the Monthly Development Report for the month of October 2003.
2.3
3. This circular is being issued in exercise of powers conferred by section 11 (1) of the Securities and Exchange Board of India Act, 1992, read with section 10 of the Securities Contracts (Regulation) Act 1956, to protect the interests of investors in securities and to promote the development of, and to regulate the securities market. CLARIFICATIONS* 1. SEBI had issued a circular No. SEBI/MRD/SE/AT/36/2003/30/09 dated September 30, 2003 stipulating the conditions to be complied in respect of private placement of debt securities. These conditions governed three aspects, viz., issuance, listing and trading of privately placed debt securities. 2. The said circular was issued by SEBI after a consultative paper on the subject was placed on the web site of SEBI for public comments. Subsequent to the issuance of the circular, market participants have made representations and suggestions and sought clarifications on the various provisions of the circular from SEBI. A series of meetings were also held with them. Meanwhile, SEBI has vide press release dated November 25, 2003 granted a transition period up to March 31, 2004 to those issuer companies who had issued privately placed debt securities but did not list those securities prior to September 30, 2003 (the date of the circular) to enable them to comply with the provisions of the circular. 3. The clarifications sought and representations covered the following aspects : 3.1 Applicability of the circular to (i) Type of issuer companies; (ii) Prospective and existing issues; (iii) Tenor of the debt instruments. Extent of disclosures and applicability of DIP Guidelines Association of SEBI registered intermediaries, including merchant bankers Vetting of Offer document Whether the requirement of 1% deposit with the stock exchange/s is mandatory Applicability of mi nimum subscription clause as per DIP guidelines Credit rating Listing through a separate listing agreement Denomination for issuance and market lot for trading Trading of securities on the stock exchanges.
3.2 3.3 3.4 3.5 3.6 3.7 3.8 3.9 3.10 *
Issued by SEBI vide SEBI/MRD/SE/AT/46/2003 dated 22-12-2003.
SUPPLEMENT FOR SECURITIES LAWS & REGULATION OF FINANCIAL MARKETS 4. The clarifications to the above are as follows: 4.1 Applicability of the circular (i) Type of Issuer companies (a)
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The SEBI circular dated September 30, 2003 would be applicable to all listed companies which have any of their securities, either equity or debt, offered through an offer document, i.e., through a public issue and listed on a recognized stock exchange and also includes Public Sector Undertakings whose securities are listed on a recognized stock exchange. Further, unlisted companies/statutory corporations/other entities, if they so desire, may get their privately placed debt securities listed in the stock exchanges, by complying with the relevant provisions of the said circular.
(b)
(ii) Prospective and existing issues (a) The SEBI circular is applicable to all debt securities that have been and would be issued on a private placement basis on or after the date of the circular, i.e., September 30, 2003. The circular would also apply to those issuer companies whose outstanding debt securities were issued prior to September 30, 2003. However, such issuer companies are required to comply with the provisions of the circular before March 31, 2004 for which transition time was provided vide press release dated November 25, 2003. If, however, the issuer companies do not comply with the aforesaid conditions for listing of such securities before March 31, 2004, then such securities would remain unlisted and, would, therefore, not be permitted for trading in the Stock Exchange trading platform from April 01, 2004.
(b)
(c)
(iii) Tenor of the debt instruments The SEBI circular would not be applicable for private placement of debt securities having a maturity of less than 365 days. 4.2 Extent of disclosures and applicability of DIP Guidelines (a) As already stipulated in the circular dated September 30, 2003 the issuer companies shall make full disclosures (initial and continuing) in the manner prescribed in Schedule II of the Companies Act, 1956, Chapter VI of the SEBI (DIP) Guidelines, 2000 and the listing agreement with the stock exchanges. (b) Such disclosures may be made through the web site of the stock exchanges where the debt securities are sought to be listed if the privately placed debt securities are issued in the standard denomination of Rs. 10 lakhs. (c) The issuer companies which make frequent private placements of debt
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SUPPLEMENT FOR SECURITIES LAWS & REGULATION OF FINANCIAL MARKETS securities would be permitted to file an umbrella offer document on the lines of a Shelf prospectus as applicable for a public issue. (d) As regards financial disclosures, issuer companies which are not in a position, for genuine reasons, to disclose audited accounts upto a date not earlier than six months of the date of the offer document, in terms of provisions of Clause 6.18 of SEBI (DIP) Guidelines, 2000 may disclose the audited accounts for the last financial year and unaudited accounts for the subsequent quarters with a limited review by a practicing Chartered Accountant. (e) It is also being clarified that the provisions other than Chapter VI of SEBI (DIP) Guidelines, 2000 will not be applicable for privately placed debt securities. Association of SEBI registered intermediaries, including merchant bankers (a) The appointment of intermediaries (other than debenture trustee) for private placement of debt securities is not mandatory. (b) Since engaging the services of an intermediary (other than debenture trustee) is not mandatory, the appointment of such an intermediary would be left to the discretion of the issuer company, as it deems fit. (c) There is no prohibition on SEBI registered intermediaries to be associated with the privately placed unlisted debt securities.However, such intermediaries would be accountable for their activities. Further, they would be required to furnish periodical reports to SEBI in such format as specified by SEBI from time to time. Vetting of offer document There is no requirement of vetting of the offer document by SEBI. Whether the requirement of 1% deposit with the stock exchange/s is mandatory There is no requirement to deposit 1% of the issue size of the privately placed debt securities with the stock exchanges. Applicability of minimum subscription clause as per DIP guidelines This clause will not be applicable for privately placed debt securities. Credit rating The debt securities shall carry a credit rating from a Credit Rating Agency registered with SEBI. Listing through a separate listing agreement The separate Listing Agreement for listing the privately placed debt securities is being finalised. Till such time, the issuance process would be allowed and the securities may be listed on the basis of disclosures subject to the issuer company furnishing an undertaking to the Stock Exchanges stating, interalia, that the issuer company shall sign the Listing Agreement as soon as the same comes into force. Denomination for issuance and market lot for trading (a) The privately placed debt securities need not necessarily be issued in denomination of Rs. 10 lakhs. (b) The securities shall be issued in demat form.
4.3
4.4 4.5
4.6 4.7
4.8
4.9
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(c) However, if an investor is allotted securities of Rs.1 lakh or less, such securities may be issued in physical form at the option of the investor. It shall be disclosed by the issuer companies that such investors would not be able to trade in such securities through the stock exchange mechanism. 4.10 Trading of securities on the stock exchanges (a) The trading in the privately placed debt securities would be permitted in standard denomination of Rs. 10 lakhs in the anonymous, order driven system of the stock exchanges in a separate trading segment. The marketable lot would be Rs. 10 lakhs. (b) All class of investors would be permitted to trade subject to the said standard denomination/marketable lot. (c) The trades executed on spot basis shall be required to be reported to the stock exchange/s. 5. The stock exchanges are directed to: make necessary amendments to the listing agreement, byelaws, rules and regulations for the implementation of the above decision immediately, as may be applicable and necessary. bring the provisions of this circular to the notice of the listed companies/member brokers/clearing members of the Exchange and also to disseminate the same on the website for easy access to the investors; and communicate to SEBI, the status of the implementation of the provisions of this circular in Section II, item no. 13 of the Monthly Development Report for the month of January, 2004.
6. This circular is being issued in exercise of powers conferred by section 11 (1) of the Securities and Exchange Board of India Act, 1992, to protect the interests of investors in securities and to promote the deve lopment of, and to regulate the securities market.
INTERNAL AUDIT OF PORTFOLIO MANAGERS*

1. As you are aware, all portfolio managers are required to disclose the performance of their portfolios to their clients, including disclosure of the performance indicators calculated on the basis of weighted average method taking each individual category of investments for the immediately preceding three years in case of discretionary portfolio managers. In order to make the investors fully aware about how their funds have been deployed and also to give them an objective analysis of the performance of the portfolios being managed by the portfolio managers on discretionary basis in comparison with the rise or fall in the markets, it has been decided to disclose the performance of benchmark indices in the periodical reports to be furnished to the client in terms of Regulation 21 of SEBI (Portfolio Managers) Regulations, 1993. The portfolio managers may select any of the indices available, e.g. BSE (Sensitive) index, S&P CNX Nifty, BSE 100, BSE 200 or S&P CNX 500, depending on the investment objective and portfolio of the client. These benchmark indices may be decided by the portfolio managers and any change at a later date shall be recorded and justified with specific reasons thereof. As the purpose of introducing benchmarks is to indicate the performance of the portfolios vis-a-vis. markets to the investors, the portfolio managers may give performance of more than one index if they so desire. Also, they have the option to give their management perception on the performance of their schemes. The Boards of portfolio managers may review the performance of the funds managed by them for each client separately in their meetings and should take corrective action wherever necessary. They may also compare the performance of the portfolios with benchmarks. 2. Boards of the portfolio managers should review the compliance of regulations in their periodical meetings. They should develop a system of getting quarterly reports of compliance of SEBI Regulations and Guidelines and also that due diligence has been exercised by their officials in their operations and that the interests of investors are protected. Such reports may be placed before the Boards by the compliance officers. Boards of the portfolio managers should also review redressal of investors grievances. Any deficiency letters or warning letters issued to the portfolio managers by SEBI should also be placed before the Boards of the portfolio managers. 3. There shall be internal audit by a practicing CA or CS so as to judge the quality of internal procedures being followed by the portfolio manager. The report of the internal audit shall be submitted to the Board of the portfolio manager.
Issued by SEBI vide IMD/PMS/CIR/1/21727/03 dated 18-11-2003.
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4. The portfolio manager shall exercise due diligence in all their operational activities. 5. Compliance of the above guidelines may please be disclosed to SEBI while submitting the half yearly report. The report is to be submitted twice a year, as on 31st of March and 30th of September. The report should reach SEBI within thirty days of the period to which it relates. These guidelines are being issued in accordance with the provisions of Regulation 39 of SEBI (Portfolio Managers) Regulations, 1993.

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PART A AN OVERVIEW OF CAPITAL MARKET IN INDIA*

SUPPLEMENT FOR SECURITIES LAWS & REGULATION OF FINANCIAL MARKETS

SUPPLEMENT FOR SECURITIES LAWS & REGULATION OF FINANCIAL MARKETS

SUPPLEMENT FOR SECURITIES LAWS & REGULATION OF FINANCIAL MARKETS

SUPPLEMENT FOR SECURITIES LAWS & REGULATION OF FINANCIAL MARKETS

SUPPLEMENT FOR SECURITIES LAWS & REGULATION OF FINANCIAL MARKETS

SUPPLEMENT FOR SECURITIES LAWS & REGULATION OF FINANCIAL MARKETS

SUPPLEMENT FOR SECURITIES LAWS & REGULATION OF FINANCIAL MARKETS

SUPPLEMENT FOR SECURITIES LAWS & REGULATION OF FINANCIAL MARKETS

SUPPLEMENT FOR SECURITIES LAWS & REGULATION OF FINANCIAL MARKETS

` AN OVERVIEW OF SECURITIES LAWS IN INDIA*

SUPPLEMENT FOR SECURITIES LAWS & REGULATION OF FINANCIAL MARKETS

A. Repeal of Capital Issues (Control) Act, 1947

SUPPLEMENT FOR SECURITIES LAWS & REGULATION OF FINANCIAL MARKETS

B. Enactment of the SEBI Act, 1992

SUPPLEMENT FOR SECURITIES LAWS & REGULATION OF FINANCIAL MARKETS

SUPPLEMENT FOR SECURITIES LAWS & REGULATION OF FINANCIAL MARKETS

SUPPLEMENT FOR SECURITIES LAWS & REGULATION OF FINANCIAL MARKETS

C. Securities Laws (Amendment) Act, 1995

SUPPLEMENT FOR SECURITIES LAWS & REGULATION OF FINANCIAL MARKETS

SUPPLEMENT FOR SECURITIES LAWS & REGULATION OF FINANCIAL MARKETS

SUPPLEMENT FOR SECURITIES LAWS & REGULATION OF FINANCIAL MARKETS

D. The Depositories Act, 1996

SUPPLEMENT FOR SECURITIES LAWS & REGULATION OF FINANCIAL MARKETS

SUPPLEMENT FOR SECURITIES LAWS & REGULATION OF FINANCIAL MARKETS

SUPPLEMENT FOR SECURITIES LAWS & REGULATION OF FINANCIAL MARKETS

SUPPLEMENT FOR SECURITIES LAWS & REGULATION OF FINANCIAL MARKETS

E. The Depository Related Laws (Amendment) Act, 1997

Securities Laws (Amendment) Act, 1999

SUPPLEMENT FOR SECURITIES LAWS & REGULATION OF FINANCIAL MARKETS

SUPPLEMENT FOR SECURITIES LAWS & REGULATION OF FINANCIAL MARKETS

SUPPLEMENT FOR SECURITIES LAWS & REGULATION OF FINANCIAL MARKETS

G. The Securities Laws (Second Amendment) Act, 1999

SUPPLEMENT FOR SECURITIES LAWS & REGULATION OF FINANCIAL MARKETS

SUPPLEMENT FOR SECURITIES LAWS & REGULATION OF FINANCIAL MARKETS

H. SEBI (Amendment) Act, 2002

SUPPLEMENT FOR SECURITIES LAWS & REGULATION OF FINANCIAL MARKETS

SUPPLEMENT FOR SECURITIES LAWS & REGULATION OF FINANCIAL MARKETS

Violations Before Amendment

Penalty After Amendment

Not exceeding Rs.1.5 lakh / Failure

SUPPLEMENT FOR SECURITIES LAWS & REGULATION OF FINANCIAL MARKETS

Not exceeding lakh

Penalty which may up to Rs. 1 crore

SUPPLEMENT FOR SECURITIES LAWS & REGULATION OF FINANCIAL MARKETS

CAPITAL MARKET FREQUENTLY ASKED QUESTIONS

SUPPLEMENT FOR SECURITIES LAWS & REGULATION OF FINANCIAL MARKETS

SUPPLEMENT FOR SECURITIES LAWS & REGULATION OF FINANCIAL MARKETS

SUPPLEMENT FOR SECURITIES LAWS & REGULATION OF FINANCIAL MARKETS

SUPPLEMENT FOR SECURITIES LAWS & REGULATION OF FINANCIAL MARKETS

SUPPLEMENT FOR SECURITIES LAWS & REGULATION OF FINANCIAL MARKETS

MUTUAL FUNDS FREQUENTLY ASKED QUESTIONS*

Reproduced from the website of SEBI (www.sebi.gov.in)

Schemes according to Maturity Period

Open-ended Fund/ Scheme

Close-ended Fund/ Scheme

SUPPLEMENT FOR SECURITIES LAWS & REGULATION OF FINANCIAL MARKETS

Schemes according to Investment Objective

Growth / Equity Oriented Scheme

Income/Debt Oriented Scheme

Money Market or Liquid Fund

SUPPLEMENT FOR SECURITIES LAWS & REGULATION OF FINANCIAL MARKETS

SUPPLEMENT FOR SECURITIES LAWS & REGULATION OF FINANCIAL MARKETS