DR.

RAM MANOHAR LOHIA

NATIONAL LAW UNIVERSITY

2018
CORPORATE LAW

“INDIA’S MARKET REGULATOR- SEBI”

5 year integrated course at RMLNLU, Lucknow

SUBMITTED TO: SUBMITTED BY:

Dr. Priya Anuragani Utkarsh kumar Prajapati
Assistant professor (Law) Enroll no. - 150101151
Dr. Ram Manohar Lohia 6th Semester
National Law University,
Lucknow.
 ACKNOWLEDGEMENT

I take this opportunity to express my profound gratitude and deep regards to Dr. Priya

Anuragani, Assistant Professor (Law) for his exemplary guidance, monitoring and

constant encouragement throughout the course. The blessing, help and guidance given

by her time to time shall carry me a long way in the journey of life on which I am about

to embark.

Lastly, I thank almighty, my parents, brother, sisters and friends for their constant

encouragement without which this research paper would not be possible.

 TABLE OF CONTENTS

1) INTRODUCTION

2) IMPORTANT DEFINITIONS UNDER THE ACT

3) MAIN FUNCTIONS OF SEBI

4) POWERS OF THE SEBI BOARD

5) CASE LAWS

6) CONCLUSION

7) BIBLIOGRAPHY
1) INTRODUCTION
The Securities and Exchange Board of India (SEBI) was constituted on 12 April
1988 as a non statutory body through an administrative Resolution of the
Government for dealing with all matters relating to development and regulation
of the Securities market and investor protection and to advise the government on
all these matters. SEBI was given statutory status and powers through and
ordinance promulgated on January 30, 1992. SEBI was established as a
statutory body on 21 February 1992. The ordinance was replaced by an Act of
Parliament as 4th April 1992. The Preamble of SEBI Act, 1992 enshrines the
objectives of SEBI - to protect the interest of investor in securities market and
to promote the development of and to regulate the securities market. The
statutory powers and functions of SEBI were strengthened through the
promulgation of the Securities Laws (Amendment) Ordinance on 25th January
1995, which was subsequently replaced by an Act of Parliament.84
Before SEBI Act, 1992, the three principal Acts governing the securities
market were: (a) the Capital Issues (Control) Act, 1947, which restricted
issuer's access to the securities market and controlled the pricing of issues;
(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; and (c) the Securities Contracts
(Regulation) Act, 1956, which provides for regulation of transactions in
securities through control over stock exchanges. The Capital Issues (Control)
Act, 1947 had its origin during the war in 1943 when the objective was to
channel resources to support the war effort. The Act was retained with some
modifications as a means of controlling the raising of capital by companies
and to ensure that national resources were channelled into proper lines, i.e.,
for desirable purposes to serve goals and priorities of the government, and to
 protect the interests of investors. Under the Act, any firm wishing to issue
securities had to obtain approval from the Central Government, which also
determined the amount, type and price of the issue.

2) IMPORTANT DEFINITIONS UNDER THE ACT

(1) The Board - Board means the Securities and Exchange Board of India
established under the act1. The Board shall be a body corporate by the name
aforesaid, having perpetual succession and a common seal, with power subject
to the provisions of this Act, to acquire, hold and dispose of property, both
movable and immovable, and to contract, and shall, by the said name, sue or
be sued.

Corporate but unlike a company, SEBI does not have corporators, i.e. shareholders.
Apart from this attribute, SEBI has by virtue of sub section (2)
of this section, all the attributes of an incorporated company or corporation,
the chief one being independent legal entity. As per Companies Act, 1956,
Body corporate means - Body corporate of corporation includes a company
incorporated outside India but does not include -
(a) a corporation sole ;
(b) a co operative society registered under any law relating to cooperative
societies ; and
(c) any other body corporate (not being a company as defined in this act),
which the Central Government may, by notification in the official Gazette,

specify in this behalf the property, contribution or investment forming part of scheme
or
arrangement, whether identifiable or not, is managed on behalf of the
investors;
d) the investors do not have day to day control over the management and

operation of the scheme or arrangement.

1
"Act" means The Securities and Exchange Board of India Act, 1992
 (2) "Securities"- Securities has the meaning assigned to it in section 2 of the
Securities Contracts (Regulation) Act, 1956 - as per section 2 of the
SCRA, securities include
(i)Shares, scrips, stocks, bonds, debentures, debentures stock or other
marketable securities of like nature in or of any incorporated company
or other body corporate;
(ii) Derivative;
(iii) Units or any other instruments issued by any collective investment
scheme to the investors in such schemes;
(iv) security receipt as defined in clause (zg) of section 2 of the

Securitisation and Reconstruction of Financial Assets and Enforcement of Security

Interest Act, 2002.

3) MAIN FUNCTIONS OF SEBI 2

 Safeguarding the interests of investors by means of adequate education and
guidance. SEBI makes rules and regulation that must be followed by the
financial intermediaries like portfolio exchanges, underwriters and merchant
bankers, etc. It takes care of the complaints received from investors.
Additionally, it issues notices and booklets for the information, assistance and
protection of small investors.

 Regulating and controlling the business on stock markets. Registration of

brokers and sub-brokers is made mandatory and they have to abide by certain
regulations and rules.

 Conduct inspection & inquiries of stock exchanges, intermediaries and self-

regulating organizations and to take appropriate measures wherever required.
This function is carried out for organized working of stock exchanges &
intermediaries.
 Barring insider trading in securities.

 Prohibiting deceptive and unfair methods used by financial intermediaries

operating in securities markets.

2
Chapter IV of the SEBI Act, 1992 deals with the powers and functions of the Board.
 Registering and controlling the functioning of stock brokers, sub-brokers, share
transfer agents, bankers, trustees, registrars, merchant bankers, underwriters,
portfolio managers, investment advisers and various other intermediaries who
might be linked to securities markets in any manner.

 SEBI issue guidelines and instructions to businesses concerning capital issues.

Separate guidelines are provided for initial public issue, issue by a listed
companies, etc. It conducts research and publishes information beneficial to all
market players (i.e. all buyers and sellers).

 SEBI regulates mergers and acquisitions as a way to protect the interest of

investors. For this, SEBI has released appropriate guidelines with the intention
that such mergers and takeovers won’t be at the expense of small investors.

 Registering and controlling the functioning of collective investment schemes

such as mutual funds. SEBI has created regulations and guidelines that should
be followed by mutual funds. The aim is to maintain effective supervision and
avoid any unfair and anti-investor actions.
 Promoting self-regulatory organization of intermediaries. It has extensive legal
powers. Having said that, self-regulation is preferable to external regulation.
The function of SEBI is to motivate financial intermediaries to create their
professional associations and manage harmful actions of their members. It can
also make use of its powers when needed for protection of investors.

 Carrying out steps in order to develop the capital markets by having an

accommodating approach.

 Provide appropriate training to financial intermediaries. This function is great

for healthy environment in the stock markets and also for the protection of
investors.
 Levying fee or any other type of charges to carry out the purpose of the Act.

 Performing functions that may be assigned to it by the Central Government of

India.
 4) POWERS OF THE SEBI BOARD – the board has been assigned with
following power :

a. Power of Civil court3

- 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.
ATTACH– After passing of an order on an application made for approval by
he 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.
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.

b. Powers to regulate or prohibit issue of prospectus, offer document or

advertisement soliciting money for issue of securities4
. 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

3
Section 11 (3) of the SEBI Act, 1992
4
section 11A (1) of the SEBI Act, 1992
 also specify the conditions subject to which the prospectus, such offer
document or advertisement, if not prohibited, may be issued.

c. Power to issue directions5

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.

d. Power to investigate6
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 person7 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

5
Section 11(B) of the SEBI Act, 1992
6
section 11 (C) of the SEBI Act, 1992
7
Investigating authority
 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.

e. Power to issue Cease and desists proceeding8

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.

f. Regulation of Intermediaries9
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.

8
Section 11 D of the SEBI Act, 1992
9
Chapter V registration certificate : the SEBI Act, 1992
 g. Power to Cancel Certificate10
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.

h. Powers to Prohibit the Manipulative and Deceptive Devices, Insider

Trading and Substantial Acquisition of Securities or Control11
According to Section 12 A of the act, no person shall directly or indirectly –
(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;

10
Section 12 (3) of the SEBI Act, 1992
11
Chapter V A of the SEBI Act, 1992
 (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.

i. 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.

j. Power to Adjudicate12
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
127 Section 15 I of the SEBI Act, 1992 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
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.

12
Section 15 I of the SEBI Act, 1992
 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.
.

k. Power To Make Regulations13

Section 30 of the act empowers the SEBI to make regulations130 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.
l. 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

13
Section 30 of the SEBI Act, 1992
14
Section 11(4) of the SEBI Act, 1992
 market, take any of the following measures, either pending investigation or
inquiry or on completion of such investigation or inquiry.

5) CASE LAWS-

(DEFINING BODY CORPORTAE)

In State Trading Corporation Vs Commercial Tax officer (1963)15
Hidayatullah , J, defined the body corporate as : Unlike an unincorporated
company, which has no separate existence and which the law does not
distinguished from its members, an incorporated company has a separate
existence and the law recognizes it as a legal person separate and distinct from
its members. This new legal personality emerges from the moment of
incorporation and from that date the persons subscribing to the memorandum
of association and other persons joining as member are regarded as a body
corporate or a corporation aggregate and the new person begins to function as
an entity.
(2) Collective investment scheme87
- 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 utilized 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.

15
1963, 33 comp case 1057(SC) : AIR 1963 SC 1811
 (FUNCTIONS)
In the case of Virendra Bansal Vs. Securities and Exchange Board
of India & Another 16The 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 a 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.
For the reasons stated herein above, the petitions fail. In all the Special Civil
Applications Rule is discharged with no order as to costs. Interim relief

grated, earlier, is vacated.

16
Special Civil Application No. 1396/04, 14328/04, 14328/04, 14351/04, 14355/04, 14650/04, 14641/04,
14631/04, 1518.
 (POWER TO ISSUE DIRECTIONS)
In the matter of Securities and Exchange Board of IndiaVs. Ajay Agarwal17
, there was alleged misstatement of facts in prospectus of company and
misguiding investors. Restraint order from 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 applies prospectively, the Board cannot be prevented from acting in terms
of the law which exists on the day the Board passed its order.

(POWER TO CANCEL CERTIFICATE)

In S N Mukherjee Vs Union of India 18the 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.

17
MANU/SC/0137/ 2010
18
AIR 1990 SC 1984.
 6) CONCLUSION-
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. I am happy to say that SEBI is
shouldering the responsibility in all these three areas with great deal of
efficiency and commitment.19
Thus the SEBI has issued various regulations in respect of each of he
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.Over and above this, various penalties and adjudications which could be
imposed on persons including the various intermediaries who are held to have

contravened provisions of the enactment and committed defaults. The Act thus

19
Text of the Hon'ble Prime Minister’s speech on the occasion of inauguration of SEBI Bhavan on October 06,
2006
provides sufficient deterrents to those who may indulge in defaults and illegalities and
malpractices on the market to the detriment of the investors.

7) BIBLIOGRAPHY

1) http://www.yourarticlelibrary.com/stock-exchange/what-are-the-main-
objectives-of-sebi/1068

2) https://www.sebi.gov.in/sebi_data/commondocs/ar01021_p.pdf

3) https://www.sebi.gov.in/ (official government website)

4) Book- Avatar Singh, Company law.

5) http://universalteacher.com/1/functions-of-sebi/