FORMATION AND POWERS OF SEBI

FACULTY OF LAW
JAMIA MILLIA ISLAMIA

Submitted By- Mohd Yasin

Semester- 7th
Section – A
Roll No.- 20
Submitted To- Dr. Qazi Usman Sir

Corporate Law (II) Project

 TABLE OF CONTENTS

INTRODUCTION…………………………………………………………… ………...
3

SEBI
COMMITTEES…………………………………………………………………..4

EMERGENCE OF SEBI IN INDIA……………………...………………………………..

6

OBJECTIVES OF

SEBI……………………………………………………………….. 7

FUNCTIONS OF THE

BOARD…………………………………………………………. 8

POWERS OF THE BOARD………………………………………………………….. 10

CONCLUSION……………………………………………………………………… 1
8

BIBLIOGRAPHY……………………………………………………………………. 2
0

2
 INTRODUCTION

SEBI was setup by the Government in April 1988 and become statutory body on 30th January
1992. The transformation was formalized by the Act of Parliament in April 1992. The Act may be
called the Securities and Exchange Board of India Act, 1992.1 The Act charged the SEBI, the first
National Regulatory Body in India with comprehensive statutory power over practically all aspects
of capital market operation to Protect the Interest of the Investors and to promote the development
and to regulate the securities marked by such measures as it thinks fit. The SEBI with it's over 18
years of existence has made considerable dent in the capital market through its various
development and regulatory measures for investor protection and healthy development and
regulation of the Capital Market.2

SC held in the case of B.S.E. Brokers Forum, Bombay And Others v. Securities and Exchange
Board Of India And Others held that establishment of independent regulatory agencies and need
for expert regulations were long felt primarily as a response to the growing complexity in human
affairs and trade and business in particular. It was felt that a regulator who was aware of the realities
of that field should be ready to regulate that field. Demand for regulators who were not mere
Government officials but people who are experts in the fields came up. Regulations framed by an
expert body like SEBI was felt to be an effective substitute for Government regulation.

The Securities and Exchange Board of India Act, 1992 provides for establishment of board to
protect the interest of investors in securities and to promote the development and regulate the

1
B.S.E. Brokers Forum, Bombay And Others v. Securities And Exchange Board Of India And Others, AIR2001 SC
1010.
2
Bal Krishan, S.S. Narta, Security Markets in India 51 (1996).

3
securities market and for matter connected therewith or incidental thereto.3 It is almost truism that
the adequacy and the quality of corporate governance shape the growth and the future of any capital
market and economy. The concept of corporate governance has been allocating public attention
for quite some time in India. Corporate governance is considered an important instrument of
investor's protection, and it is therefore a priority on SEBI agenda. To further improve the level of
corporate governance, need was felt for comprehensive approach at this stage of capital market, to
accelerate the adoption of globally acceptable practice of corporate governance. This would ensure
that Indian investor are in no way less informed and protected and compared to their counterpart
in best developed capital market and economics of the world. Securities market regulators in
almost all developed and emerging market have for some time been concerned about the
importance of subject and the need to raise the standard of corporate governance.4

SEBI play dynamic role in the development of corporate governance. Capital has emerged as the
most global commodity in recent times. The world is moving towards a pure play capital market
system where the flow of capital is determined by the dynamics of its efficient use rather than any
other factor. In a borderless capital market competition for capital will largely influence the
economic and financial behaviour of corporations.5

The need for setting up independent government agency was realized to regulate and develop the
stock and capital market in India and to curb the malpractices as were noticed in the case of
companies, merchant banker and broker who are all operating in the capital market. The guidelines
principles of regulation are defined to include:

 Equality of treatment and opportunity to all shareholders.

 Transparency in acquisition of share
 fair and truthful disclosure through public arrangements availability of sufficient time for
shareholders to make properly informed decision.
 Protection of right for small and minority shareholders and
 Avoidance of use of price sensitive information concerning a public officer by all persons
privy to confidential information for their own profit.

3
Manual of SEBI 16 (ed. 2001).
4
K.M. Birla, Committee on Corporate Governance 507 (Vol. 99 2000).
5
Kshama Kaushik, Corporate Governance Myth to Reality XI (2005).

4
SEBI had to wait for almost four years before the Securities and Exchange Board of India
Ordinance 1992 was promulgated in January of that year followed by the Securities and Exchange
Board of India Act, 1992 conferring statutory power. However, it was not that SEBI was lying
dormant during this period. In fact, it went ahead laying down guidelines and registering various
intermediaries besides doing extensive research and publishing position papers on various subjects
connected to market.

SEBI Committees

(i) Technical Advisory Committee.

(ii) Committee of review of structure of market infrastructure.
(iii) Member of Advisory Board for SEBI Investor Protection and Education Fund,
(iv) Takeover Regulation Advisory Committee,
(v) Primary Market Advisory Committee,
(vi) Secondary Market Advisory Committee.
(vii) Mutual Fund Advisory Committee.
(viii) Corporate Bonds and Securitization Advisory Committee.
(ix) Takeover Penal
(x) SEBI Committee on Disclosures and Accounting Structures.
(xi) High Power Advisory Committee on consent and order and compounding offences,
(xii) Derivatives Market Review Committee,
(xiii) Committee of Infrastructure Funds.
The process of industrial growth essentially requires the development of capital market which
provides long term finance to entrepreneurs. The capital market is a wide term and includes all
transactions in the long term fund. In time a capital market is an organized market for effective
and efficient mobilization of investible funds from the numerous savers and their transfer to those
who are in need of money to finance business operator either in private or public sector.6

The term capital market refers to facilities and institutional arrangement for the borrowing and
lending of long term fund. But in broad sense capital market may be said to consist of series of

6
S.S. Narta, Capital Issues in India 6 (1992).

5
channels through which saving of the community are made available for industrial and commercial
enterprises for public.7

Though India has had a long history of stock exchange, the securities enact really emerged from
the periphery into the main stream of the country financial system only since the beginning of this
decade. Awareness of interest in investment opportunities available in the securities market has
grown significantly in recent years. This awareness and interest have however grown significantly
in recent years. This awareness and interest have however, not yet crystallized into committed
discerning and growing pool of investor. Some of the main constraining factors are high volatility
in market price several undesirable practice and structural inadequacy which have led to the several
erosions of investor's confidence. These have hampered sustained growth in the security market.
The law attending the securities market is today fragmented and spread over several pieces of
legislation and is administered by different authorities. The present system of regulation and the
institutional structure are no longer left to be adequate to cope with sustained growth, emerging
complexity and newness of some activities. For promoting sustained growth in the securities
markets over a long period it has now become necessary to evolve comprehensive securities law
with unified set of objectives, a development approach a single administrative authority and
integrated framework to deal with all aspects of securities market.

EMERGENCE OF SEBI IN INDIA

The Companies Act, 1956 has since provided the legal framework for corporate entities in India.
The need for streamlining this act was felt from time to time as the corporate sector grew in pace
with the Indian Economy, with as many as 24 Amendments taking place since 1956. Major
amendment to the Act were made through the Companies Amendment Act 1988, after considering
the recommendations of the Sachar Committee and then again in 1998, 2000 and finally in 2002
though companies send Amendment Act, 2002 consequent to the report of the Eruadi Committee.

After a hesitant beginning in the 1980, India took up its Economic Reform Programme in the 1990.
Equally, a need was felt for comprehensive review of the Companies Act, 1956. Unsuccessful
attempts were made in 1993 and 1997 to replace the present act with a new law. The Companies
Amendment Act 2003, containing important provision relating to corporate governance was also

7
K.S. Sharma, The Institutional Structure of Capital Market in India 1 (2010).

6
introduced, the consideration of which has been held back in anticipation of comprehensive review
of company law. In the current national and international context, there is a requirement for
simplifying corporate laws so that they are amendable to clear interpretation and provide a
framework that would facilitate faster economic growth. It is also increasingly being recognized
that the framework for regulation of corporate entities had to be in tune with emerging socio-
economic scenario, encourage good corporate governance and enable protection of the interest of
the investors and other stakeholders. In the competitive and technology driven business
environment, while corporate require greater autonomy of operation and opportunity for self-
regulation with optimum compliance costs, there is need to bring about transparency through better
disclosures and greater responsibility on the part of corporate owner and management for improved
compliance.8 The committee notes that the growth in the number of investor in India was
encouraging. The trends revealed that in addition to FIIs and institutions, investor, small investor
were also gradually beginning to regain the confidence in the capital market that had been shaken
consequent to the stock market scams during the past decade. It is imperative for the healthy
growth of the corporate sector that this confidence is maintained. For this purpose, the committee
tells that not only should corporate system and process be credible and transparent, the interest of
the investor may be safeguard in a manner that enables them to exercise their choice in an informed
manner while making investment decision and also providing them with a fair exist option. The
concept of investor protection has to be looked at from different angles into account the
requirement of various kinds of investor.

The SEBI has done a commendable job in developing the framework for Indian capital market in
its formative stages subsequent to the liberalization process installed in the 1990.

However, further in balanced manner keeping in view the Indian context while enabling best
international practice. In doing so, the regulator must examine different aspects of capital market
operation, the roles played by different intermediaries and also the interaction amongst them, so
that the capital market is able to deliver finance to meet requirement of the corporate sector
promptly in a cost-effective manner and keeping with the changing requirement of new business
model.

8
J.J. Irani, Committee Report in Company Cases 32 (Vol. 125, 2005).

7
 Objectives of SEBI

The basic objectives of the legislation are healthy and orderly development of securities market
and adequate investor protection. To this end, it is necessary to promote market which ensures:

(i) Fairness: The market must promote integrity in dealings high standards of conduct and good
business practice.

(ii) Efficiency: The market should be professionalized and well informed, offering high standards
of service at reasonable cost.

(iii) Confidence: The market must inspire confidence in both investor and issuer to actively
participate in and rely more on the securities market.

(iv) Flexibility: The market should be resilient, innovative and be continuously responsive to the
need of all market participants. The legislation will have a strong development trust and regulation
would be subservient to the goals of development. Regulation would be kept to the maintain
necessary to ensure adequate investor protection and to serve the interest of development of the
markets.

FUNCTIONS OF THE BOARD9

The power and functions of the board as per act are very wide and effective, which can deal the
securities market in very effective manner to protect the interest of investors and shareholders.
They are as follows: Functions of Board10 .- it shall be the duty of the Board to protect the interests
of investors in securities and to promote the development of, and to regulate the securities market,
by such measures as it thinks fit. These measures include:

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, trustees of trust deeds, registrars to an issue, merchant bankers,
underwriters, portfolio managers, investment advisers and such other intermediaries who
may be associated with securities markets in any manner;

9
Chapter IV of the SEBI Act, 1992.
10
Section 11 of the SEBI act, 1992.

8
c. registering and regulating the working of the depositories, participants, custodians of
securities, foreign institutional investors, credit rating agencies and such other intermediaries
as the Board may, by notification, specify in this behalf;

d. registering and regulating the working of venture capital funds and collective investment
schemes],including mutual funds;

e. promoting and regulating self-regulatory organizations;

f. promoting investors’ education and training of intermediaries of securities markets;

g. prohibiting insider trading in securities;

h. regulating substantial acquisition of shares and take-over of companies in the securities

market;

i. calling for calling for information from, undertaking inspection, conducting inquiries and
audits of the [stock exchanges, mutual funds, other persons associated with the securities
market] intermediaries and self- regulatory organisations 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 is under
investigation or inquiry by the Board;

j. performing such functions and exercising such powers under the provisions of the
Securities Contracts (Regulation) Act, 1956 as may be delegated to it by the Central
Government;

k. levying fees or other charges for carrying out the purposes of this section;

l. conducting research for the above purposes;

m. calling from or furnishing to any such agencies, as may be specified by the Board, such
information as may be considered necessary by it for the efficient discharge of its functions;

n. Performing such other functions as may be prescribed.

o. the Board may take measures 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
9
 any recognised stock exchange where the Board has reasonable grounds to believe that such
company has been indulging in insider trading or fraudulent and unfair trade practices
relating to securities market.

In the case of Virendra Bansal Vs. Securities and Exchange Board of India & Another 11 The
Hon’ble High court of Gujrat has held that as a cumulative effect of the aforesaid facts and
circumstances of the case and the judicial pronouncements, the Scheme floated by SEBI viz. SEBI
(Interest Liability and Regularization) Scheme 2004 is absolutely true, correct and legal in
consonance with the Act, 1992. Likewise, the calculation of registration fees, adopted by SEBI in
absence of break up turnover and in absence of Auditor’s report before the cut off date, is true,
correct, legal and in consonance with the Act, 1992 and Regulations, 1992. The Court cannot
extend the benefit of the Scheme after the cut off date, especially in the facts of the present case,
when enough extensions have been given by SEBI and whereby a large number of stock-brokers
of Ahmedabad Stock Exchange have already availed the benefit of the Scheme. The cut off date
is an integral part of the benefit under the Scheme. Cut off date, in facts of this case is not an
arbitrary. The concession and conditions of the regularization Scheme cannot be segregated. It is
a matter of Government policy that what to give as a concession for, what is to be achieved
promptly, without keeping the open ended policy. The Scheme is optional. It is in consonance with
the Act, 1992 and Regulations, 1992.

POWERS OF THE SEBI BOARD12

The board has been assigned with following power:

1. Power of Civil court13 - For carrying out the duties assigned to it under the act, the SEBI has
been vested with the powers as are available to a Civil Court under the Code of Civil Procedure
Code, 1908 for trying a suit in respect of following matters:

i. the discovery and production of books of account and other documents, at such place and
such time as may be specified by the Board;

11
1 Special Civil Application No. 1396/04, 14328/04, 14328/04, 14351/04, 14355/04, 14650/04, 14641/04, 14631/04,
1518.
12
Section 11 (3) of the SEBI Act, 1992
13
Section 11 (3) of the SEBI Act, 1992.

10
 ii. summoning and enforcing the attendance of persons and examining them on oath;

iii. inspection of any books, registers and other documents of any person referred to in section
12, at any place;

iv. inspection of any book, or register, or other document or record of the company;

v. issuing commissions for the examination of witnesses or documents.

2. Powers to suspend and Restrain14 - the Board may, by an order, for reasons to be recorded in
writing, in the interests of investors or securities market, take any of the following measures, either
pending investigation or inquiry or on completion of such investigation or inquiry15, namely: -

a) suspend the trading of any security in a recognised 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 organisation from
holding such position;
d) impound and retain the proceeds or securities in respect of any transaction which is under
investigation;
e) attach, after passing of an order on an application made for approval by the Judicial
Magistrate of the first class having jurisdiction, for a period not exceeding one month, one
or more bank account or accounts of any intermediary or any person associated with the
securities market in any manner involved in violation of any of the provisions of this Act, or
the rules or the regulations made thereunder: However, only the bank account or accounts or
any transaction entered therein, so far as it relates to the proceeds actually involved in
violation of any of the provisions of this Act, or the rules or the regulations made thereunder
shall be allowed to be attached;
(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. The board may, take any of the measures specified in clause (d) or clause (e)
or clause (f), in respect of any listed public company or a public company which intends to

14
Section 11(4) of the SEBI Act, 1992.
15
4 Substituted for clause (i) of sub section (2) by the SEBI (Amendment) Act, 2002, w.e.f. 29- 10-2002.

11
 get its securities listed on any recognised stock exchange where the Board has reasonable
grounds to believe that such company has been indulging in insider trading or fraudulent and
unfair trade practices relating to securities market. Furthermore, the Board shall, either before
or after passing such orders, give an opportunity of hearing to such intermediaries or persons
concerned.
3. Powers to regulate or prohibit issue of prospectus, offer document or advertisement
soliciting money for issue of securities16- The Board may for the protection of investors for
(i) the matters relating to issue of capital, transfer of securities and other matters incidental
thereto; and
(ii) the manner in which such matters shall be disclosed by the companies. The Board may
by general or special orders prohibit any company from issuing prospectus, any offer
document, or advertisement soliciting money from the public for the issue of securities. The
board may also specify the conditions subject to which the prospectus, such offer document
or advertisement, if not prohibited, may be issued. It may specify the requirements for listing
and transfer of securities and other matters incidental thereto.
4. Power to issue directions17- If after making enquiry, the Board is satisfied that it is necessary
in the interest of investors, or orderly development of securities market. Or to prevent the affairs
of any intermediary or other persons referred to in section 12 (stock broker, sub broker, share
transfer agents etc.) being conducted in a manner detrimental to the interest of investors or
securities market. Or to secure the proper management of any such intermediary or person. It may
issue such directions-
a. to any person or class of persons referred to in section 12, or associated with the securities
market; or
b. to any company in respect of matters specified in section 11A, as may be appropriate in
the interests of investors in securities and the securities market.

In the matter of Securities and Exchange Board of India Vs. Ajay Agarwal18, there was alleged
misstatement of facts in prospectus of company and misguiding investors. Restraint order from

16
section 11A (1) of the SEBI Act, 1992.
17
7 Section 11(B) of the SEBI Act, 1992
18
MANU/SC/0137/ 2010.

12
accessing securities market (Power of SEBI to issue directions- Section 11B of the Securities and
Exchange Board of India Act, 1992) While using powers the SEBI restrained Director of Company
from accessing securities market on prima facie case that facts were misstated in the prospectus of
the company during public issue of shares and therefore, investors were misguided. The Appellate
Board ruled in favour of Respondent on ground that provision of Section 11B cannot be invoked
in respect of the alleged misconduct which took place at a point of time when Section 11B was not
on the statute book. The issue was whether Section 11B of the Securities and Exchange Board of
India Act, 1992 could be invoked by the Chairman of the in conjunction with Sections 4(3) and 11
for restraining the Respondent. The Supreme Court has held that Provisions of Section 11B being
procedural in nature can be applied retrospectively. Even if the law applies prospectively, the
Board cannot be prevented from acting in terms of the law which exists on the day the Board
passed its order.
The High Court of Bombay has decided in favour of powers exercised by board under SEBI Act,
in the matter of Banhem Securities Pvt. Ltd Vs National Stock Exchange & ors19. The brief facts
of the matter are:- The challenge in this petition is to the circular issued by the SEBI Board dated
9.7.1999, the relevant portion of which reads thus: “The Stock Exchange should on receipt of the
arbitration award, debit the amount of the arbitration award from the security deposit or any other
monies of the member (against whom an award has been passed) and keep the amount in a separate
account. Thereafter, a confirmation may be obtained from the concerned member that he has not
filed any appeal within the stipulated time under section 34 of the Arbitration and Conciliation
Act, and only then the payment may be made to the awardee. If an appeal is filed and the same is
pending in a Court of law, the amount so kept in the separate account be paid to the awardee in
accordance with the court orders.

At the time of debiting the amount, the Stock Exchange may if so desire inform him that the
Exchange will not be liable for loss of interest, business etc in case the award is modified by the
Court. The Exchange may also indicate that if any amount of interest is still payable to the awardee
e.g. from the date of debiting the member’s account till the date of payment of the award amount
to the awardee, the same be recoverable from the concerned member and the Stock Exchange shall
not be liable in this regard.

19
Writ Petition Lodging No. 168 of 2002, dated 23.1.2002

13
5. Power to investigate20- Where the Board has reasonable ground to believe that the transactions
in securities are being dealt with 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 this Act or the rules or the regulations made or directions issued by the Board, it
may, at any time by order in writing, direct any person specified in the order to investigate the
affairs of such intermediary or persons associated with the securities market and to report thereon
to the Board.

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 or every person associated with the
securities market to preserve and to produce to the Investigating Authority or any person
authorised by it 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.

The Investigating Authority may 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 it or any person authorised by it in this behalf as it 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 its investigation.

6. Power to issue Cease and desists proceeding21- If the Board finds, after causing an inquiry to
be made, that any person has violated, or is likely to violate, any provisions of this Act, or any
rules or regulations made thereunder, it may pass an order requiring such person to cease and desist
from committing or causing such violation: Provided that the Board shall not pass such order in
respect of any listed public company or a public company which intends to get its securities listed
on any recognised stock exchange unless the Board has reasonable grounds to believe that such
company has indulged in insider trading or market manipulation.

20
section 11 (C) of the SEBI Act, 1992.
21
9 Section 11 D of the SEBI Act, 1992

14
7, Regulation of Intermediaries22: Registration of Stock Broker, Sub Broker, Share Transfer
Agents. There are number of intermediaries which are associated with securities market in buying,
selling and otherwise dealing in securities such as: -
(i) stock-broker,
(ii) sub- broker,
(iii) share transfer agent,
(iv) banker to an issue,
(v) trustee of trust deed,
(vi) registrar to an issue,
(vii) merchant banker,
(viii) underwriter,
(ix) portfolio manager,
(x) investment adviser. Etc.

As per section 12 (1) of the act :- No stock-broker, sub- broker, share transfer agent, banker to an
issue, trustee of trust deed, registrar to an issue, merchant banker, underwriter, portfolio manager,
investment adviser and such other intermediary who may be associated with securities market shall
buy, sell or deal in securities except under, and in accordance with, the conditions of a certificate
of registration obtained from the Board in accordance with the regulations made under this Act:
Provided that a person buying or selling securities or otherwise dealing with the securities market
as a stock- broker, sub-broker, share transfer agent, banker to an issue, trustee of trust deed,
registrar to an issue, merchant banker, underwriter, portfolio manager, investment adviser and such
other intermediary who may be associated with securities market immediately before the
establishment of the Board for which no registration certificate was necessary prior to such
establishment, may continue to do so for a period of three months from such establishment or, if
he has made an application for such registration within the said period of three months, till the
disposal of such application.

22
Chapter V of SEBI Act, 1992

15
8. Power to Cancel Certificate23: - The Board may, by order, suspend or cancel a certificate of
registration in such manner as may be determined by regulations. However as per proviso of this
section, no order under this sub- section shall be made unless the person concerned has been given
a reasonable opportunity of being heard. According to this section SEBI is empowered to suspend
or cancel a certificate of registration granted by it. However, this should be done as per principle
of natural justice and requires a reasonable opportunity of being heard to such person. Moreover,
any order passed by SEBI under this sub section would affect vital rights of the concerned person,
so, the order must be a speaking or reasoned order notwithstanding the fact that the SEBI is not a
judicial or a quasi Judicial body. In S N Mukherjee Vs Union of India24 the Supreme Court has
held that in view of the expanding horizon of the principle of natural justice, the requirement to
record reasons can be regarded as one of the principle of natural justice which governs exercise of
power by administrative authorities.

In another case, in The Securties Exchange Board of India Vs Saikala Associaties Ltd.25 the apex
court was considering an appeal filed by SEBI challenging the order passed by the Tribunal
overturning the order earlier passed by SEBI against broker for violation of the provisions of
section 12(1) ead with rule 3, the 1992 rules. After considering the rival submissions, the only
question before the apex court was, Whether Tribunal has power to modify the penalty imposed
by SEBI? The Supreme court observed that , the position of Broker / sub broker in case of violation
was statutorily provided under section 12 of the Act, which has to be read with rule 3 of the rules.
The apex court further observed that , no power has been conferred on the Tribunal to travel beyond
the areas covered by section 12 ad rule 3 ad concluded that when something was to be done
statutorily in a particular way, it can be done only in that way and there was no scope for taking
shelter under a discretionary power. Accordingly, the order of the Tribunal was set aside and the
order passed by SEBI was restored.

9. Powers to Prohibit the Manipulative and Deceptive Devices, Insider Trading and
Substantial Acquisition of Securities or Control26- According to Section 12 A of the act, no
person shall directly or indirectly –

23
Section 12 (3) of the SEBI Act, 1992.
24
AIR 1990 SC 1984.
25
MANU/SC/0629/2009.
26
Chapter V A of the SEBI Act, 1992.

16
 (a) use or employ, in connection with the issue, purchase or sale of any securities listed or
proposed to be listed on a recognised stock exchange, any manipulative or deceptive device
or contrivance in contravention of the provisions of this Act or the rules or the regulations
made there under;

(b) employ any device, scheme or artifice to defraud in connection with issue or dealing in
securities which are listed or proposed to be listed on a recognised stock exchange;

(c) engage in any act, practice, course of business which operates or would operate as fraud
or deceit upon any person, in connection with the issue, dealing in securities which are listed
or proposed to be listed on a recognised stock exchange, in contravention of the provisions
of this Act or the rules or the regulations made thereunder;

(d) engage in insider trading;

(e) 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 this Act or the rules or the regulations made
thereunder;

(f) acquire control of any company or securities more than the percentage of equity share
capital of a company whose securities are listed or proposed to be listed on a recognised
stock exchange in contravention of the regulations made under this Act.

10. Powers to impose Penalties and Adjudication Chapter VI of the SEBI Act, 1992 contains
Section 15A to Section 15 JA which deals with penalties which can be imposed under the Act for
various failures, defaulters, non disclosures and other offences.

11. Power to Adjudicate27:- For the purpose of adjudging under sections 15A, 15B, 15C, 15D,
15E, 15F, 15G, 15H, 15HA and 15HB, the Board shall appoint any of its officers not below the
rank of a Division Chief to be an adjudicating officer for holding an inquiry in the prescribed
manner after giving any person concerned a reasonable opportunity of being heard for the purpose
of imposing any penalty. While holding an inquiry, the adjudicating officer shall have power to

27
7 Section 15 I of the SEBI Act, 1992.

17
summon and enforce the attendance of any person acquainted with the facts and circumstances of
the case to give evidence or to produce any document which in the opinion of the adjudicating
officer, may be useful for or relevant to the subject matter of the inquiry and if, on such inquiry,
he is satisfied that the person has failed to comply with the provisions of any of the sections , he
may impose such penalty as he thinks fit in accordance with the provisions of any of those sections.
During adjudging quantum of penalty mentioned as above, the adjudicating officer shall have due
regard to the following factors, namely:

(a) the amount of disproportionate gain or unfair advantage, wherever quantifiable, made as a
result of the default;

(b) the amount of loss caused to an investor or group of investors as a result of the default;

(c) the repetitive nature of the default. All sums realised by way of penalties under this Act shall
be credited to the Consolidated Fund of India.28

12. Power to Make Regulations29:- Section 30 of the act empowers the SEBI to make regulations
to carry out the purposes of the act and every regulation must be made and published as a
notification in the Gazette. Such regulations may provide for all or any of the following matters,
namely:-
a. the times and places of meetings of the Board and the procedure to be followed at such meetings
including quorum necessary for the transaction of business;
b. the terms and other conditions of service of officers and employees of the Board;

c. the matters relating to issue of capital, transfer of securities and other matters incidental thereto
and the manner in which such matters shall be disclosed by the companies under section 11A;

d. the conditions subject to which certificate of registration is to be issued, the amount of fee to be
paid for certificate of registration and the manner of suspension or cancellation of certificate of
registration under section 12.

CONCLUSION

28
Section 15JA of the SEBI Act, 1992.
29
Section 30 of the SEBI Act, 1992

18
All modern economies, therefore, recognise the need for sound regulation of securities markets.
This is needed not just for proper functioning of these markets, but also for their very survival. It
is good regulation that will ensure that markets are safe and perceived to be safe by the public at
large. It is good regulation that will ensure that necessary information is available to the public so
that they can take informed decisions about investments. It is good regulation that will further
ensure that while engines of growth are allowed to move at full speed, there is no space for
manipulators in the system. Today securities market regulation has evolved to include three
principal objectives: (a) Fair, efficient and transparent markets; (b) Investor protection; (c)
Reduction of systemic risk.

Thus the SEBI has issued various regulations in respect of each of the intermediaries such as stock
brokers and sub broker, share transfer agents and registrars to an issue, banker to an issue,
debenture trustees, merchants bankers, underwriters portfolio manager, depositories , participants,
custodian of securities, foreign institutional investors, credit rating agencies, venture capital funds,
collective investment schemes including mutual funds, etc to regulate and ensure fair play by these
intermediaries. SEBI has also issued regulations to prohibit insider trading and to regulate
substantial acquisition of shares and take over of companies. All these rules and regulations,
circulars and guidelines serve the objective of affording necessary protection to the investors.

19
 BIBLIOGRAPHY

Books

 A.K. Majumdar Company Law & Practice ( Taxmann’s) 13th Ed. 2008
 Avtar Singh Company law 16th Ed.2009
 Ashok K. Bagrial on Company Law 11th Ed. 2007
 Charlesworth’s Company Law 8th Edition 1965
 H.K. Saharay Principles and Practice of Company Law in India 2nd Ed. 1983

Acts/Statutes

 The Companies Act, 2013

 Securities and Exchange Board of India Act, 1992

Other Sources

 Manupatra
 SCC Online
 Westlaw

20