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1. Who are insiders under the SEBI regulations 2015?

What are the provisions provided to prohibit


insider trading? Explain how these provisions would prohibit insider trading? Role of compliance
officer.
 any person who is:
a connected person; or
in possession of or having access to unpublished price sensitive information;

Connected person

1. any person who:


• is or has during the six months prior to the concerned act:
• been associated with a company in any capacity, such as:
• any contractual, fiduciary or employment relationship
• a director, officer or an employee of the company
• professional or business relationship between himself and the company
• that allows such person access to UPSI
2. Immediate Relative of persons mentioned in Point 1.
“Immediate relative” means a spouse of a person, and includes parent, sibling, and child of
such person or of the spouse, any of whom is either dependent financially on such person, or
consults such person in taking decisions relating to trading in securities

3. holding company or associate company or subsidiary company

4. any intermediary or an employee or director thereof

5. an investment company, trustee company, asset management company or an employee or director


or member of board thereof

6. an official of a stock exchange or of clearing house or corporation

7. member of the board of directors or an employee, of a public financial institution

8. an official or an employee of a self-regulatory organization (SRO)

9. a banker of the company

10. any concern, firm, trust, HUF, company or AOP in which director of a company or his immediate
relative or banker of company, has more than 10% of the holding or interest;

Unpublished price sensitive information UPSI

• any information, relating to a company or its securities, directly or indirectly,

• that is not generally available which upon becoming generally available,

• is likely to materially affect the price of the securities.

Provisions:

• Insider not to communicate, provide or allow access to any person

• No person to procure inside information from an insider except under discharge of official function or
as required under law
• No insider shall trade in securities that are listed or proposed to be listed on a stock exchange when in
possession of unpublished price sensitive information

Compliance officer duties:

• Review the trading plan for potential violations and seek express undertakings to enable such
assessment and to approve and monitor the implementation of the plan.

CHANGING THE TRADING PLAN:

• The trading plan once approved shall be irrevocable and the insider shall mandatorily have to
implement the plan, without being entitled to either deviate from it or to execute any trade in the
securities outside the scope of the trading plan.

• Upon approval of the trading plan, the compliance officer shall notify the plan to the stock exchanges
on which the securities are listed.

2. Definition of NBFC. Categories of NBFC in India. What is the power of RBI as regards the regulation
of NBFC in India?
 “A non-banking finance company carrying business of financial institution will be an NBFC”

Activities included in the definition:

 Financing, -Whether by giving loans, advances or otherwise


 Acquisition of shares, stocks or securities
 Hire purchase
 Insurance – excluded by notification
 Management of chits funds
 Money circulation schemes

Exclusion to NBFC:

If principal business is industrial, trading, etc.,

Principal Business Test

Financial assets are more than 50 per cent of its total assets (netted off by intangible assets)

a) Financial assets to include all assets that are financial in nature


b) Exception: cash, bank deposits, advance payment of taxes and deferred tax payments

Income from financial assets is more than 50 per cent of the gross income

Following to be examined:

Nature of business, principal thrust areas and scheme for distribution of assets.

Hence if there are companies engaged in agricultural operations, industrial activity, purchase and sale of goods,
providing services or purchase, sale or construction of immovable property as their principal business and are
doing some financial business in a small way, they will not be regulated by the Reserve Bank

NBFC – D: if NBFC accepts Public Deposits

NBFC – ND: if NBFC does not accept Public Deposits


Categories of NBFC:

LOAN COMPANY: it includes a company which is not an asset finance company but a financial institution
principally engaged in the business of lending funds (other than its own) by loans or advances, or otherwise for
any activity.

INVESTMENT COMPANY: it consists of those companies or institutions whose main business is to acquire and
manage securities for investment purposes.

ASSET FINANCE COMPANY: asset finance company are the financial institutions carrying on its business mainly
in the financing of physical assets that correspond to productive/ economic activity for example- automobile,
lathe machines, tractors, generator system, earth moving and material handling equipment moving on the
power and general purpose industrial machines.

INFRASTRUCTURE FINANCE COMPANY: it is the kind of financial institution principally engaged in providing
infrastructure loans.

MUTUAL BENEFITS FINANCIAL COMPANY: mutual benefit financial company refers to the financial institution
which is notified by the central government under the company’s act, 2013 whose primary aim is to enable its
members to pool their money with a pre calculated investment objectives. Its source of fund is share capital,
deposits from its members and the general public.

3. What is money laundering? Authorities assigned the task of preventing/reporting money


laundering in India? Why money laundering is a crime from social perspective? Explain with your
reason. Punishment prescribed under PMLA

 Money laundering has fairly benign origins in the hawala and hundi systems of South Asia, which were
informal financial systems which allowed people to execute financial transactions in confidence and
secrecy.

However, these systems soon attracted criminal organizations, which began to use them along with
other means in order to launder money to remove the taint of illegality.

In the past century, money laundering has become an international problem.

The Act implements the Political Declaration adopted by the Special Session of the UN General
Assembly, 1999 which called upon the Member-States to adopt money-laundering legislation and
programmes. The Act came into force w.e.f. 1 July 2005.

Objects and reasons for the Act:

 to prevent and control money laundering,


 to provide of confiscation of property derived or obtained from money laundering, and
 matters connected therewith.

Financial Intelligence Unit-India (FIU)

FIU is the central national agency responsible for receiving, processing, analyzing and disseminating
information relating to suspected financial transactions.
Powers and functions include:

 receiving information and reports from Reporting Entities


 Processing, analysing and disseminating information to any authority in law in relation to
suspected financial transactions.

Not only is money laundering a serious crime in itself, this practice plays a wider role, allowing criminals to
fund and expand their operations, and financially impacting regulators, businesses and governments in the
fight against it.

Money laundering transfers financial power from legitimate businesses and individuals to criminals, whilst
undermining financial institutions and markets. The accountancy industry is unfortunately – and largely
unwittingly – very much involved, as criminals seek to clean their money by concealing it within the financial
system. For the victims of crimes enabled by laundered money, the effects can be devastating and lifelong,
including great personal and family loss, in addition to ruined business reputations.

Punishment:

 Any person who commits the offence of money laundering shall be punishable with rigorous
imprisonment (between 3 to 7 years), and also liable to fine. [10 years where the proceeds of crime
relate to an offence under the NDPS Act.]

 Scheduled Offences:

o Offence under several statutes including the IPC (eg. criminal conspiracy, cheating etc.), SEBI
Act (eg. insider trading), Customs Act, etc.
o Offence of cross border implications
o No monetary threshold

4. What is current account and capital account under FEMA? Give 2 examples. Give the background of
FEMA before it enacted and what is the power of RBI as far as imposing restrictions under this act is
concerned.

"capital account transaction" means a transaction which alters the:

 assets or liabilities, including contingent liabilities outside India of persons resident in India or
 assets or liabilities in India of persons resident outside India

“current account transaction" means a transaction other than a capital account transaction and such
transaction includes:

 Payment due in connection with foreign trade


 Payment due as interest on loans and net income from investments
 remittances for living expenses of parents, spouse and children residing abroad, and
 expenses in connection with foreign travel, education and medical care of parents, spouse and
children;

"foreign exchange" means foreign currency and includes,-

 deposits, credits and balances payable in any foreign currency,


 drafts, travellers cheque, letters of credit or bills of exchange drawn in Indian currency but payable in
any foreign currency,
 drafts, travellers cheques, letters of credit or bills of exchange drawn by banks, institutions or persons
outside India, but payable in Indian currency;

Capital A/c transactions:

 Investment by a person resident in India in foreign securities-ADR /GDR


 Foreign currency loans raised in India and abroad by a person resident in India-ECBs
 Transfer of immovable property outside India by a person resident in India- Sale of real estate abroad
 Guarantees issued by a person resident in India in favour of a person resident outside India-
Guarantee of Indian Company in favour of its wholly-owned foreign subsidiary
 Export, import and holding of currency/currency notes- $5000 carried while travelling to US

Current A/c transactions:

 Remittance out of lottery winnings


 Remittance of income from racing/riding etc. or any other hobby
 Remittance for purchase of lottery tickets, banned magazines, etc.
 Payment of commission on exports made to Joint Ventures / Wholly Owned Subsidiaries
 Remittance of interest income on funds held in Non-Resident Special Rupee (Account) Scheme
 Remittance of dividend by any company to which the requirement of dividend balancing is applicable

The Foreign Exchange Management Act (FEMA) has been introduced by the Vajpayee Government as a
replacement for earlier Foreign Exchange Regulation Act (FERA). It became an act on 1st June 2000.

Objective:

 To consolidate and amend the law relating to foreign exchange with the objective of facilitating
external trade and payments.
 It was also formulated to promote the orderly development and maintenance of foreign exchange
market in India.

Applicability:

 FEMA is applicable to all parts of India.


 The act is also applicable to all branches, offices and agencies outside India owned or controlled by a
person who is a resident of India.

Restrictions under FEMA:

 RBI may not, however, impose restriction on the drawal of foreign exchange for payments due on
account of amortization of loan, etc.
 RBI has issued FEM (Transfer or issue of security by a person resident outside India) Regulations, 2000
to regulate the transfer / issue of shares by certain persons resident outside India

(a) transfer or issue of any foreign security by a person resident in India;


(b) transfer or issue of any security by a person resident outside India;
(c) transfer or issue of any security or foreign security by any branch, office or agency in India of a person
resident outside India;
(d) any borrowing or lending in rupees in whatever form or by whatever name called

(e) any borrowing or lending in rupees in whatever form or by whatever name called between a person
resident in India and a person resident outside India;
(f) deposits between persons resident in India and persons resident outside India;
(g) export, import or holding of currency or currency notes;
(h) transfer of immovable property outside India, other than a lease not exceeding five years, by a person
resident in India;

 acquisition or transfer of immovable property in India, other than a lease not exceeding five years, by
a person resident outside India;
 giving of a guarantee or surety in respect of any debt, obligation or other liability incurred-
(i) by a person resident in India and owed to a person resident outside India; or
(ii) by a person resident outside India

5. What is IPO? How is book building different from fixed price issue? What is green shoe option? Give
the procedure to be followed by a company before it issues shares to general public.
 An initial public offering, or IPO, is the very first sale of stock issued by a company to the public. Prior
to an IPO the company is considered private, with a relatively small number of shareholders made up
primarily of early investors (such as the founders, their families and friends) and professional
investors (such as venture capitalists or angel investors). The public, on the other hand, consists of
everybody else – any individual or institutional investor who wasn’t involved in the early days of the
company and who is interested in buying shares of the company. Until a company’s stock is offered
for sale to the public, the public is unable to invest in it.

Book building is a systematic process of generating, capturing, and recording investor demand for shares
during an initial public offering (IPO), or other securities during their issuance process, in order to support
efficient price discovery.

Under fixed price, the company going public determines a fixed price at which its shares are offered to
investors. The investors know the share price before the company goes public. Demand from the markets is
only known once the issue is closed

A greenshoe option is an over-allotment option. In the context of an initial public offering (IPO), it is a
provision in an underwriting agreement that grants the underwriter the right to sell investors more shares
than initially planned by the issuer if the demand for a security issue proves higher than expected. Over-
allotment options are known as greenshoe options because, in 1919, Green Shoe Manufacturing Company
(now part of Wolverine World Wide, Inc. (WWW)) was the first to issue this type of option. A greenshoe option
provides additional price stability to a security issue because the underwriter can increase supply and smooth
out price fluctuations. It is the only type of price stabilization measure permitted by the Securities and
Exchange Commission (SEC).

A Public company can issue shares by way of public issue, rights issue or bonus issue and private placement.
For public issuing of shares, the following steps are required to be fulfilled:

1. The company must be a registered company with the registrar.

2. Prospectus bearing the invitation for buying of shares of the company to the public.

3. The prospectus must be submitted to the registrar (SEBI) before publishing.


4. The prospectus should have the required information about the company like:

❖ Name of the Directors


❖ Terms of issue
❖ Minimum subscription
❖ Type of investment
❖ Previous years performance
❖ Opening and closing dates
❖ Application form and requisite fees
❖ Allotment
❖ Call-on dates
❖ Bank details for deposit.

5. The Registrar after confirming amenability publishes the prospectus

6. After selecting the applicants for allotment of shares, a regret letter is sent to everyone else and share
certificate is issued after the share allotment is done.

7. The remaining shares are then allocated on call on dates. Depending on the number of shares, the calls are
made for the remaining shares.

6. What is securities as defined under SCRA? Give names of various instruments that are securities as
per this act.
 Securities include –
 shares, scrips, stocks, bonds, debentures, debenture stock or other marketable securities of a like
nature in or of any incorporated company or other body corporate
 Derivatives (traded and cleared through Stock Exchange mechanism)
 Security Receipts issued by Asset Reconstruction Companies (ARCs)
 Units or any other instruments issued under CIS or a MF scheme
 any certificate or instrument (by whatever name called), issued to an investor by any issuer being a
special purpose distinct entity which possesses any debt or receivable, including mortgage debt,
assigned to such entity, and acknowledging beneficial interest of such investor in such debt or
receivable
 Government securities
 Rights or interest in securities
 Any other instruments as declared by the central govt.

Note: "securities" shall not include any unit linked insurance policy or scrips or any such instrument or unit, by
whatever name called, which provides a combined benefit risk on the life of the persons and investment by
such persons

7. What is the role of depository in Indian market? How does a depository help in maximizing the
efficiency of capital market?

Depositories are integral institutions in the Indian Capital Market and their functionality can be compared to
banking entities. Their role comes into play from the time an investor makes a decision on investing. In India,
there are two depositories namely National Securities Depository Limited (NSDL) or Central Depository
Services (India) Limited (CDSL) that are registered with SEBI.

Both NSDL ans CDSL, facilitate dematerialization of shares i.e. held the shares in electronic form. So, in
a way depository is held accountable for safe-keeping of your portfolio of securities.

On instruction of the account holder, depositories also facilitate transfer of securities from one
account to the other. So, transfer of ownership of securities is affected by depositories.

With all the details concerning your personal details, scrips as well the number of units of each scrip
held by the individual, several corporate actions or transactions such as the issue of bonus shares or annual
dividend are executed via depositories acting as an important intermediary in the entire process.

So, the depository other than acting as a safe-keeper of your securities provides services pertaining to
the transaction in securities.

Depositories provide investor services through Depository Participant

The two depositories in India provide their services to large investor base through depository participants.

As per SEBI rules, banks, financial institutions as well as trading members registered with SEBI are eligible to
act as depository participants (DP).

Services offered by depositories

Providing their services through depository participants, the depositories offer the major service of
dematerialization of shares. With dematerialization is eliminated the risk of false or fake securities, bad
delivery etc.

Facilitates share transfer from one DP account to the other on an immediate basis without levy of stamp duty.

Nomination facility is made easy.

Any change in address of correspondence that is registered with the DP automatically gets registered with all
the companies in which an individual holds share

Facilitates holding of different securities such as debt, equity or government securities in a single account. So,
depositories hence provide a convenient and easy way of consolidation of accounts/folios.

8. What are the qualifications prescribed for a chairperson of Debt recovery appellate tribunal?
 A person shall not be qualified for appointment as
(a) is, or has been, or is qualified to be, a Judge of a High Court; or
(b) has been a member of the Indian Legal Service and has held a post in Grade I of that service
for at least three years; or
(c) has held office as the Presiding Officer of a Tribunal for at least three years.
9. What are the rights of a beneficial owner of a security under Depository Act?
 The actual investor is the Beneficial Owner (BO) of the securities. All the benefits of dematerialized
shares are given to the actual investors
 the depository must make adequate arrangements including insurance for indemnifying the beneficial
owners for any loss that may be caused to such beneficial owners by the wrongful act, negligence or
default of the depository or its participants or of any employee of the depository or participant
 the depository participant shall redress the grievances of beneficial owners within thirty days of the
date of the receipt of the complaint
 Every depository shall take adequate measures including insurance to protect the interests of the
beneficial owners against risks likely to be incurred on account of its activities as a depository
 Depository must maintain the following records:
o register and an index of BOs
o details of the holding of the securities of BOs at the end of each day
o instructions sent to or received from BOs
 Every participant shall enter into an agreement with a beneficial owner before acting as a participant
on his behalf
 A participant shall register the transfer of securities to or from a beneficial owner’s account only on
receipt of instructions from the beneficial owner
 Every participant shall provide statements of account to the beneficial owner as per their agreement
with BO

10. Distinguish between current account & capital account transactions.


11. Who is the adjudicating authority under PMLA? How can he be removed from office?
 The adjudicating authority consists of a chairperson and 2 members. It functions within Department
of Revenue, Ministry of Finance.

The Adjudicating Authority is not bound by the procedure laid down in the CPC but “shall be guided by the
principles of natural justice” and shall be entitled to regulate its own procedure.

The role of adjudicating authority is to consider attachments made by authorities and grant of refuse
permission for retention and confiscation of seized property.

12. Who are systematically important core investment company (CIC-ND-SI)? Give all the requirements
for a CIC-ND-SI
 Systemically Important Core Investment Company (CIC-ND-SI): CIC-ND-SI is an NBFC carrying on the
business of acquisition of shares and securities which satisfies the following conditions:-
 Its asset size is Rs 100 crore or above
 it holds not less than 90% of its Total Assets in the form of investment in equity shares,
preference shares, debt or loans in all group companies;
 its investments in the equity shares (including instruments compulsorily convertible into
equity shares within a period not exceeding 10 years from the date of issue) in all group
companies constitutes not less than 60% of its Total Assets;
 it does not trade in its investments in shares, debt or loans in group companies except
through block sale for the purpose of dilution or disinvestment;
 it does not carry on any other financial activity

13. Provisions applicable to legally disable person under limitations act.


 Where a person entitled to institute a suit or make an application for the execution of a decree is, at
the time from which the prescribed period is to be reckoned, a minor or insane, or an idiot, he may
institute the suit or make the application within the same period after the disability has ceases, as
would otherwise have been allowed from the time specified therefor in the third column of the
Schedule.
 Where such person is, at the time from which the prescribed period it to be reckoned, affected by
two such disabilities, or where, before his disability has ceased, he is affected by another disability, he
may institute the suit or make the application within the same period after both disabilities have
ceased, as would otherwise have been allowed from the time so specified.
 Where the disability continues upto the death of that person, his legal representative may institute
the suit or make the application within the same period after the death, as would otherwise have
been allowed from the time so specified.
 Where the legal representative referred to in sub-section (3) is, at the date of the death of the person
whom he represents. affected by any such disability, the rules contained in sub-sections (1) and (2)
shall apply.
 Where a person under disability dies after the disability ceases but within the period allowed to him
under this section, his legal representative may institute the suit or make the application within the
same period after the death, as would otherwise have been available to that person had he not died.

14. What are the powers and provisions before the appellate tribunals under PMLA?

Appellate Tribunal: is empowered to hear appeals against the decision of Adjudicating Authority and other
authorities under this Act. It consists of a Chairperson and two other members.

Established by Central Government and consists of Chairperson and two other members to hear appeals
against the decision of Adjudicating Authority and other authorities under the Act

Appeals to the Tribunal can be made by the Director, or any person aggrieved by an order of the Adjudicating
Authority, or any banking institution or allied institution within 45 days from the date on which the order is
received.

Further appeal can be made against the order of the Tribunal to High Court within 60 days.

Appellate Tribunal vested with powers of a civil court. Can also review its decisions and decide cases ex parte.

Special Court: is set up by the Central Government for trial of offences of money laundering.

Jurisdiction of civil courts is barred. The offence of money laundering is triable only by a special court
constituted for the area in which the offence has been committed.

The Special court can take cognizance of any offence of money upon a complaint made by an authority,
without the accused being committed to it for trial.

The provisions of the CrPC shall apply to the proceedings before a Special Court.

Applications for bail should be made before the High Court having jurisdiction.

No person accused of an offence for a period of more than 3 years under Part A shall be released without the
public prosecutor being given a chance to oppose the release and there are grounds for believing he is not
guilty except a person under the age of 16 years or a woman or a sick and infirm person