COMPANY LAW

TOPIC: SEBI AS A REGULATORY AUTHORITY ON

COMPANIES

SUBMITTED TO:

PROF. Dr. RASHMI

SUBMITTED BY:
SRI VARSHINI. S - 17040142020

MELENA JANET JEEN. R – 17040142019

ABINAYA BALAS – 170401420

NEENA KRISHNA – 17040142061

BBA.LLB (SEMESTER-5) 2017- 2022

ALLIANCE SCHOOL OF LAW

ALLIANCE UNIVERSITY, BANGALORE

SUBMITTED ON: 25.09.2019

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TABLE OF CONTENTS:

1. Abstract
2. Introduction
2.1) Introduction
2.2) Background
2.3) Review of literature
2.4) Scope and Objectives
2.5) Hypothesis
2.6) Research Methodology
2.7) Research question
3. Security Exchange Board of India
4. Objectives
5. Regulations for intermediaries
6. Control on Insider Trading
7. Functions
a) Protective Functions
b) Development Functions
c) Regulatory Functions
8. Types of Regulatory actions taken by SEBI
9. Powers of SEBI
10. Role of SEBI in corporate governance
11. Role and responsibility of SEBI in the Indian Capital Market
12. Case law - Insider Trading: Hindustan Lever Limited v. SEBI
13. Conclusion

ABSTRACT:

Generally, people plan that some phase of their income to spend and ultimate income to
invest. They may additionally invest money in bank, insurance policy or through purchasing
shares, debentures and mutual funds. More threat is related with investments of stock market.
For the protection of such traders a regulatory authority has been hooked up known as SEBI
by means of the government. The paper shows the position of SEBI (Securities and Exchange

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Board of India) as regulatory body for the safety of investors’ money. The Primary feature of
Securities and Exchange Board of India beneath the SEBI Act, 1992 is the protection of the
investors’ pastime and the wholesome improvement of Indian financial markets. It is very
tough venture for the regulators to forestall the scams, regulating and monitoring each and
each segment of the financial markets. One of the things to do in the hand of the regulator is
the series and distribution of cash to the investors. For the protection of such investors
interest and to safe guard their hard-earned money a regulatory authority officially formed by
Government of India, named as Securities and Exchange Board of India (SEBI). This
research paper aims to gain insight into the role of SEBI as a regulatory authority and its
impact on the Companies. The study is descriptive in nature. Thus, the findings have been
made by analysis in order to know the role and impacts of SEBI on the companies.

INTRODUCTION:

The Securities and Exchange Board of India (SEBI) is the most important regulatory
physique of the securities market in the Republic of India. Its stated goal is to protect the
interests of buyers in securities and to promote the improvement of and to regulate the
securities market and for matters related therewith or incidental thereto. SEBI plays an
important role in regulating all the operation in the Indian capital markets. It attempts to

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protect the interest of investors and aims at developing the capital markets by enforcing
various rules and regulations.

It was established on April 12, 1992 under the SEBI Act, 1992. SEBI is headquartered at
the Bandra Kurla Complex in Mumbai, India. It has regional offices in major cities of India
such as New Delhi, Kolkata, Chennai, and Ahmedabad. These cover the North, South, East,
and West regions of India. Besides, it has a network of local branch offices in prominent
Indian cities.

BACKGROUND:

The Securities and Exchange Board of India was set up as a non-statutory regulatory
physique in the year 1988, however it was not given autonomous, statutory powers till
January 30, 1992, when the Securities and Exchange Board of India Act was passed by way
of the Parliament of India. SEBI supplanted the Controller of Capital Issues, which hitherto
had regulated the securities market in India, as per the Capital Issues (Control) Act of 1947,
one of the first acts surpassed by the Parliament of India following its independence from the
British Empire. The SEBI is the regulator for all the security markets in India. It was
established in 1988 and was given statutory power on 12 April 1992 through the SEBI Act,
1992. SEBI has its Head Quarters at the business district of Bandra Kurla Complex in
Mumbai, and has regional offices in New Delhi, Kolkata, Chennai and Ahmedabad. Before
SEBI came into existence, Controller of Capital Issues was the regulatory authority; its
derived authority from the Capital Issues (Control) Act, 1947. In April, 1988 the SEBI was
constituted as the regulator of capital markets in India under a resolution of the Government
of India. Initially SEBI was a non- statutory body without any statutory power. It became
autonomous and given statutory powers by SEBI Act 1992. SEBI has Commenced regulating
the commodity derivatives market under the Securities Contract Regulation Act (SCRA)
1956 with effect from September 28 2015, and the Forward Contracts Regulation Act
(FCRA) 1952 got replaced with effect from September 29 2015.

REVIEW OF LITERATURE:

Economic Laws Practice “Suhail Nathani and Yogesh Chande”(2014) – In terms of

section 13(8) of the Companies Act, 2013 (Act), a company, which has raised cash from
public via prospectus and has any unutilised amount out of the money so raised, is now not

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authorised to change its objects for which it raised the cash via prospectus, all this is
governed with the regulation specified by the Security Exchange Board of India (SEBI).

Apeksha Gupta (2016) –With the boom of dealings in stock markets, emerged lot of
misconducts like late shipping of shares, fee rigging and violation of regulations which
ultimately resulted in customers dropping belief in the stock exchange. Government of India
then determined to set up a regulatory physique regarded as Securities and the Exchange
Board of India (SEBI).

Anubhav Pandey (2017) – SEBI in one of the important bodies which regulates both
Primary as well as Secondary Market. Primary Market facilitates capital growth by
encouraging individuals to convert savings into investments. Primary Market being the part
of Capital market also issues new securities. The Primary market which deals with issuance
of new securities and deals with certain issues related to Primary market. SEBI encourages
both growth and development of the security market and act as a watchdog.

Navaf (2017) – SEBI has framed guidelines and regulations and a code of conduct to regulate
the intermediaries such as merchant bankers, brokers, underwriters, etc. These intermediaries
have been added under the regulatory purview and private placement has been made extra
restrictive. SEBI registers and regulates the working of inventory brokers, sub-brokers, share
switch agents, trustees, merchant bankers and all these who are related with the stock trade in
any manner. SEBI registers and regulates the working of mutual funds etc. SEBI regulates
takeover of the companies. SEBI conducts inquiries and audit of stock exchanges.

Neelamegam R. and Srinivasan R (1996) – The competency of different protective

measures in purview of existing Securities Contracts Act 1956, Securities and Exchange
Board of India Act 1992. They also examined the trading activities of primary and secondary
market in India. They figured out that though preventive measures were taken by regulators
through legislative systems, investors lost their confidence even after the setup of SEBI.

SCOPE AND OBJECTIVES:

 The main aim of this research paper is to understand the study and concept of the role
of SEBI as a regulatory authority on Companies.
 How SEBI is functioned and formulated as a regulatory authority on Companies.
 To outline the role of Securities and Exchange Board of India on companies

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  To study the roles and responsibilities of SEBI
 To outline the key functions and powers of SEBI.

HYPOTHESIS:

In this Research paper, we will discuss all the aspects in which SEBI with act as a
regulatory authority.

RESEARCH METHODOLOGY:

The research methodology used in this research paper is the Doctrinal form of research
methodology. Doctrinal approach has been adopted and compilation from literary sources,
course materials, articles, reviews, e-databases and books have been given special
importance. Case study has also been incorporated in this Research paper.

RESEARCH QUESTION:

1. How new SEBI norms build upon Companies Act?

SECURITY EXCHANGE BOARD OF INDIA:

The capital market is a market where borrowing and lending of long-term funds takes
place. Capital market deals in both, debt and equity. The primary market refers to the long–
term flow of funds from the surplus sector to the government and corporate sector (through
primary issues) and to banks and non-banks financial intermediaries (through secondary

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issues). The secondary market is a market for outstanding securities. Unlike primary issues in
the primary market which result in capital information, the secondary market facilitates only
liquidity and marketability of outstanding debt and equity instruments. It is very difficult task
for the regulators to prevent the scams, regulating and monitoring each and every segment of
the financial market. It has been discovered that SEBI 1 has played a great role in order to put
good surveillance system in a systematic manner. The Securities Exchange of India (S.E.B.I) 2
The Securities and Exchange Board of India (SEBI) was established by the Government of
India in 12 April 1988 to ensure the smooth functioning of capital market. The SEBI got legal
teeth through an ordinance issued on 30th January 1992 to protect the interest, money and
confidence of investors. The ordinance has wide ranging powers on the SEBI, including the
authority to prohibit ‘insider trading’ and regulate substantial acquisition of shares and
takeover of business. The SEBI Act (1992) as amended on March 25, 1995 by the Securities
Laws Act 1995 has empowered SEBI to register and regulate new intermediaries in the
capital market such as custodians, depositories, venture capital funds, credit rating agencies
and foreign institutional investors. Additional powers were given to SEBI to prescribe
regulations related to issue of capital and transfer of securities. SEBI’s independence was
strengthened by allowing it to issue regulations and file suits without the prior approval of the
Central Government. SEBI has also been empowered to impose monetary penalties for a
wide range of violations, and accordingly the SEBI Act provides for adjudication and
empowers SEBI to appoint adjudicating officers. The SEBI has framed regulations under the
SEBI Act and the Depositories Act for registration and regulation of all market
intermediaries, for prevention of unfair trade practices, and insider trading. As everyone
could know that these i.e. the Government and the SEBI issue notifications, guidelines and
circulars which need to be complied with by market participants. All the rules and regulations
are administered by the SEBI.

OBJECTIVES:

The statutory powers of SEBI include to protect the interests of investors in securities, to
promote the development of securities market, to regulate the securities market and for
matters connected to which. Moreover, SEBI has powers to control speculation activities,
insider trading, takeovers and other substantial share acquisitions.

1 Inserted by the securities law

2 Established under section 3

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REGULATIONS FOR INTERMEDIARIES:

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. A sub broker is a person who is registered with SEBI as such and is
affiliated to a member of a recognized stock exchange. The SEBI’s regulatory jurisdiction
extends over companies listed on stock exchanges and companies intending to get their
securities listed on any recognized stock exchange in the issuance of securities and transfer of
securities, in addition to all intermediaries and persons associated with securities market.
SEBI specify the matters to be disclosed and the standards of disclosure required for the
protection of investors in respect of issues. It can issue directions to all intermediaries and
other persons associated with the securities market with the interest of investors or of orderly
development of the securities market. And it can conduct enquiries, audits and inspection of
all concerned and adjudicate offences under the Act. Totally, it has been given necessary
autonomy and authority to regulate and develop an orderly securities market. All the
intermediaries and persons associated with securities market, viz., brokers and sub-brokers,
underwriters, merchant bankers, bankers to the issue, share transfer agents and registrars to
the issue, depositories, participants, portfolio managers, debentures trustees, foreign
institutional investors, custodians, venture capital funds, mutual funds, collective investments
schemes, credit rating agencies, etc., shall be registered with SEBI and shall be governed by
the SEBI regulations pertaining to respective market intermediary. Registration of stock
brokers are concerned a stock broker applies in the prescribed format for grant of certificate
through the stock exchanges. The stock exchange forwards the application form to SEBI as
early as possible not later than thirty days from the date of its receipt. SEBI takes into account
for considering the grant of a certificate all matters relating to buying, selling, or dealing in
securities and verifies that whether the stock broker:

1. Is eligible to be admitted as a member of a stock exchange,

2. Has the necessary infrastructure like adequate office space, equipment and man power to
effectively discharge his activities,

3. Has any past experience in the business of buying, selling or dealing in securities,

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4. Is subjected to disciplinary proceedings under the rules, regulations and bye-laws of a
stock exchange with respect to his business as a stockbroker involving either himself or any
of his partners, directors or employees, and

5. Is a fit and proper person. After satisfaction of SEBI regarding eligibility of stock-broker, it
grants a certificate to the stock-broker and sends intimation to the concern stock exchanges.
Similarly, registration of sub-brokers is concerned a sub-broker applies in the prescribed
format accompanied by a recommendation letter from a stockbroker of a recognized stock
exchange for grant of a certificate through the stock exchanges.

The eligibility criteria for registration as a sub- Broker3 are as follows:

 The applicant is not less than 21 years of age,

 The applicant has not been convicted of any offence involving fraud or dishonesty,
 The applicant has at least passed 12th standard equivalent examination from an
institution recognized by the Government, and Provided that SEBI may relax the
educational qualifications on merits having regard to the applicant's experience.
 The applicant is a fit and proper person.

After verification of the applications of sub-brokers, the stock exchange certifies and
grants a certificate to the sub-broker and sends intimation to the concern stock exchanges.
SEBI has power to suspend the registration of brokers if necessary, due to the problems
caused violation of rules and regulations. A broker’s registration number begins with the
letters “INB” and that of a sub-broker with the letters “INS”. The maximum brokerage 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 a 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.

FEES CHARGED BY A BROKER:

1. Brokerage fee is charged by member broker.

2. Penalties arising on specific default on behalf of client (investor)

3. Service tax as stipulated

3 Inserted by act 9 of 1995

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CONTROL ON INSIDER TRADING:

SEBI also undertakes the important tasks like avoid insider trading and increase
transparency in trading to encourage small investors to invest in equities. Insider means any
person who, is or was connected with the company or is deemed to have been connected with
the company, and who is reasonably expected to have access to unpublished price sensitive
information relating to securities of a company. The insiders are people such as a director and
an officer or an employee of the company or hold a position involving a professional or
business relationship between themselves and the company whether temporary or permanent.
Price sensitive information means any information which relates directly or indirectly to a
company and which if published is likely to materially affect the price of securities of that
company. The price sensitive information includes periodical financial results of a company,
intended declaration of dividends, issue of securities or buy-back of securities, any major
expansion, amalgamation, mergers and takeover plans, disposal of the whole or substantial
part of the undertaking and any significant changes in policies, plans or operations of a
company.

FUNCTIONS:

The SEBI performs functions to meet its objectives. To meet three objectives SEBI has three

important functions, they are:

1) PROTECTIVE FUNCTION:

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These functions are performed by SEBI to protect the interest of investor and provide safety
of investment4.

i) It Checks Price Rigging: Price rigging refers to manipulating the prices of

securities with the main objective of inflating or depressing the market price of
securities. SEBI prohibits such practice because this can defraud and cheat the
investors.

ii) It Prohibits Insider trading: Insider is any person connected with the company
such as directors, promoters etc. These insiders have sensitive information which
affects the prices of the securities. This information is not available to people at
large but the insiders get this privileged

2) DEVELOPMENT FUNCTIONS:

These functions are performed by the SEBI to promote and develop activities in stock
exchange and increase the business in stock exchange. Under developmental categories
following functions are performed by SEBI:

i) SEBI promotes training of intermediaries of the securities market.

ii) SEBI tries to promote activities of stock exchange by adopting flexible and
adoptable approach in following way:
 SEBI has permitted internet trading through registered stock brokers.
 SEBI has made underwriting optional to reduce the cost of issue.
 Even initial public offer of primary market is permitted through stock exchange.

3) REGULATORY FUNCTIONS:

These functions are performed by SEBI to regulate the business in stock exchange. To
regulate the activities of stock exchange following functions are performed:

i) SEBI has framed rules and regulations and a code of conduct to regulate the
intermediaries such as merchant bankers, brokers, underwriters, etc.
ii) These intermediaries have been brought under the regulatory preview and private
placement has been made more restrictive.

4 Inserted by act 9 of 1995

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 iii) SEBI registers5 and regulates the working of stock brokers, sub-brokers, share
transfer agents, trustees, merchant bankers and all those who are associated with
stock exchange in any manner.
iv) SEBI registers and regulates the working of mutual funds etc.

TYPES OF REGULATORY ACTIONS TAKEN BY SEBI:

An open access scholarly, Online, print, peer-reviewed, interdisciplinary, monthly, and fully
refereed journal information by working inside the company and if they use this information
to make profit, then it is known as insider trading. SEBI prohibits fraudulent and Unfair
Trade Practices: SEBI does not allow the companies to make misleading statements which
are likely to induce the sale or purchase of securities by any other person.

POWER OF SEBI:

 Power to call periodical returns from recognized stock exchanges.

 Power to compel listing of securities by public companies.
 Power to levy fees or other charges for carrying out the purposes of regulation.
 Power to call information or explanation from recognized stock exchanges or their
members.
 Power to grant approval to byelaws of recognized stock exchanges.
 Power to control and regulate stock exchanges.
 Power to direct enquiries to be made in relation to affairs of stock exchanges or them
members.

5 Inserted by the depositary act, substituted by act 9 of 1995

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ROLE OF SEBI IN CORPORATE GOVERNANCE:

To make company governance more practical the SEBI6 has taken up range of initiatives,
appointed numerous committees and has brought amendments to the Clauses 35B and the
Clause 49 of listing agreement. Here the SEBI’s role in company governance is illustrated
through norms and provisions as expressed these two clauses7.

SEBI norms and pointers below Clause 35B and 49 of the listing agreements for effective
company Governance: Since its institution, SEBI has taken initiatives to align Indian
company governance practices with the worldwide standards adopted in advanced
economies. The recent amendments to Clause 35B and 49 of the listing agreements build
Governance more practical and rigorous in protective the interest of all stakeholders. The
amended Clause 49 of listing agreement is in alignment with the new
Companies Act8. This clause is applicable to listed corporations however as per SEBI
clarification,
in future this clause is applicable to non-listing corporations conjointly.

CLAUSE 35B

Clause 35B Under the revised clause 35B, the issuer has agreed to provide e-voting facility in
respect of all shareholders' resolutions, to be passed at General Meetings or postal ballot
facilities to shareholders. The company has to send notices of meeting to all members,
auditors of the company and directors by POST or Registered e-mail or Courier and the same
be placed on the official website of the company. The notice of meeting should also mention
that the company is providing facility for voting by electronic means and postal ballot
facilities to members. Through this provision large number of shareholders can participate in
the selection of board members.

Board Composition

This sub-clause specifies optimum composition of BOD where at least 50% of board
members are non-executive directors and there must be one women director in the board.
Again, it states that if the Chairman is an executive director, half the Board must comprise of
Independent directors. However, if the Chairman is a nonexecutive director then 1/3rd board
members be independent directors.

6 set up in 1992
7 the Clause 35B and also the Clause 49 of listing agreement.
8 2013

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Restrictions on independent directorship:

Under the Revised Clause, no person can be an independent director of more than seven
listed companies. If any person is serving as a whole-time director in any listed company,
then he/she shall not be the independent director of more than three listed companies the
tenure of independent director will be five years which is in accordance with provisions of
new Companies Act, 2013. The proposed amendment to clause 49 of listing agreement also
contains drastic modifications regarding the nonexecutive directors’ compensation and
disclosures

ROLES AND RESPONSIBILITIES OF SEBI IN THE INDIAN CAPITAL

MARKET:

SEBI’s efforts are to create effective surveillance mechanism for the securities market, and
encourage responsible and accountable autonomy on the part of all players and observe the
rules of the game. Throughout its eighteen-year existence as a statutory body, SEBI has
sought to balance the two objectives by constantly reviewing and reappraising its existing
policies and programmes, formulating new policies and crafting new regulations in areas
hitherto unregulated, and implementing them to ensure growth of the market.

 Dematerialisation has pushed the process further. SEBI has taken several steps for the
smooth-cum-speedy development of both primary and secondary markets from time
to time for the development of all areas.
 Improvements have been made in the clearance and settlement system. A major step
in this direction has been the establishment of depositories- NSDL and CDSL—and a
clearing corporation—NSCCL.
 The SEBI has introduced an array of reforms in the primary and secondary markets
and catalysed modernization of the market infrastructure to prepare the market for the
twenty-first century. India probably the only country in the world where all the
Exchanges have screen-based trading. Computerised trading has led to reduction in
the scope for price-rigging and manipulation, since a paper trail can easily lead the
regulators now to the doorsteps of the guilty.
 SEBI has many powers for stopping fraud in capital market. It can ban on the trading
of those brokers who are involved in fraudulent and unfair trade practices relating to

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 stock market. It imposes the penalties on capital market intermediaries if they involve
in insider trading.
 The development of mutual funds was given a major impetus, with the revision of
mutual funds regulations which now provide greater operational flexibility to the fund
managers and increase their accountability and supervision. Recently, it has
introduced KYC norms and not charging on any entry-load on investments made by
investors on NFOs or on any existing schemes. SEBI is trying its level best for
availability of ULIPs at very normal and cheaper rates
 Share trading transaction carry forward cannot exceed 25 % of brokers’ total
transactions. 90-day limit for carry forward.
 SEBI uses his powers to audit the performance of different Indian stock exchange for
bringing transparency in the working of stock exchanges.

CASE LAW

Insider Trading: Hindustan Lever Limited v. SEBI9

Case Analysis

The facts of the case concerned the purchase by HLL of 8 lakh shares of BBLIL from the
Unit Trust of India (UTI) on March 25, 1996. This purchase was made barely two weeks
prior to a public announcement for a proposed merger of HLL with BBLIL.

Upon investigation, SEBI by its Order dated March 11, 1998 (Order) found that, at the time
of the purchase of shares of BBLIL from UTI, HLL was an “insider” as under Section 2(e) of
the 1992 Regulations10.

9 (1998) 18 SCL 311 MOF

10 the relevant extract of which describes an insider as any person who:

“(i) is or was connected with the company or is deemed to have been connected with the company and
is reasonably expected to have access by virtue of such connection to unpublished price sensitive
information in respect of securities of the company, or
(ii) has received or has had access to such unpublished price sensitive information.”

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SEBI held that, since, HLL and BBLIL were subsidiaries of the same London based Unilever,
and were effectively under the same management, HLL and its directors had prior knowledge
of the merger. Thus, HLL was covered under the definition of an insider as above defined.

SEBI also held that HLL was in possession of UPSI as defined under Section 2(k) of the 1992
Regulations which includes any information in relation to amalgamation, merges and
takeovers that “is not generally known or published by such company for general
information, but which if published or known, is likely to materially affect the price of
securities of that company in the market”. As per SEBI, the fact that the information about the
merger was available with HLL was enough to satisfy the requirement of Section 2(k) above.

An appeal was filed by HLL against the said SEBI Order before the Securities Appellate
Authority. On the question of whether HLL could be termed as an insider, the Appellate
Authority agreed with the SEBI Order to hold that, the information available with HLL in
relation to the merger was beyond merely self-generated information, i.e., information arising
out of its own decision making. Further, with respect to the merger, the Appellate Authority
noted that the existence of directors common to both HLL and BBLIL, and a common parent
company in Unilever meant that they (i.e., HLL and BBLIL) were in effect under the same
management. Consequently, HLL could be termed as an insider under the 1992 Regulations
and it could reasonably be presumed that HLL was privy to decision making on the merger
issue in the BBLIL board.

On the question of whether the information available with HLL constituted UPSI, the
Appellate Authority agreed with the contentions of HLL that, for information to be
considered as UPSI, it must meet the dual requirements envisaged under Section 2(k) of the
1992 Regulations11.

The Appellate Authority held that for information to be generally known, it is not required to
be confirmed or authenticated by the company as it would otherwise fall under the category
of information “published by the company”. The Appellate Authority appreciated the
evidence produced by HLL, including various news articles covering the merger, and
concluded that the information of the merger was generally widely known to the public, and

11Section 2(k)

1. The information must not be generally known or published by the company; and
2. If published or known, is likely to materially affect the prices of securities of that company in
the market.

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thus failed the first test to qualify as UPSI as per the abovementioned Section 2(k) of the
1992 Regulations.

HLL also argued that, the information of the merger of two healthy, profit – making
companies is per se not price sensitive, as price sensitivity would arise in case of merger
between a strong company and a weak company, which impacts the share price of the
companies. The Appellate Authority however noted that even in the merger of two healthy
companies there are synergistic possibilities which could lead to price sensitivity for either
company. Thus, the Appellate Authority agreed with SEBI’s conclusion that information of
the merger was price sensitive (though not ‘unpublished’). The matter is currently pending
before the Supreme Court.

Aftermath and consequences of the decision of the Appellate Authority

Subsequently, SEBI by the SEBI (Insider Trading) Amendment Regulations, 2002 amended
the definition under Section 2(k)12.

Consequently, under the revised definition speculative reports in print media, as was the case
in relation to the HLL and BBLIL merger, would not be considered as published information,
and HLL’s knowledge in relation to the merger would be considered as unpublished
information. By the same Amendment Act, SEBI also introduced a new provision, Section
2(ha) which defined “price sensitive information” to include any information relating to an
amalgamation, merger or takeover as deemed price sensitive information, regardless of
whether such information actually has any affect the price of the securities in the market.

However, the amendments did not definitively and expressly define “generally available
information”,

Regime under the 2015 Regulations

The 2015 Regulations finally set out what constitutes UPSI by defining “generally available
information” under Section 2(1)(e)13.

12 ““unpublished” means information which is not published by the company or its agents and is not specific in
nature.

Explanation. —Speculative reports in print or electronic media shall not be considered as published
information.”

13 “generally available information” means information that is accessible to the public on a non-discriminatory
basis;”

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The term “non-discriminatory access”, however, was left undefined and deliberately open-
ended. Instead, several instances were provided for what would constitute non-discriminatory
access. The illustrative (non-exhaustive) list included instances of information provided on
the website of a stock exchange. A rule of thumb would to be see if the information is capable
of being accessed by any person without breaching any law.

SEBI referred to the 2015 Regulations, and the listed company’s internal code of conduct, to
broadly state that:

 Unless a promoter is designated as a “Designated Person” by the Board of Directors

in consultation with their compliance officer, no pre-clearance for trading is needed.
 There exists an assumption that the actions of compliance officers, Board of Directors
and other entities entrusted with ensuring adherence to Insider Trading Regulations,
should be to ensure compliance with the regulatory framework and not for an “ulterior
motive”.
 An action of a compliance officer, whether it is extraneous to his or her powers, is to
be examined by the Board of Directors and the audit committee.
 The 2015 Regulations by nature are prohibitive and the applicability of its provisions
is with respect to insiders and such concerned securities to which a UPSI might
pertain. This is to avoid any undue advantage accrued to classes of investors on
account of their access to UPSI.

This development may encourage companies to devise their own code of conduct such as to
limit the persons who may be considered insider, and privy to UPSI and clearly identify the
universe of “Designated Persons”. That said, SEBI may nonetheless review the scope of
“Designated Person” to evaluate if it has been formulated in accordance with applicable
regulations.

ANALYSIS OF THE CASE

The test for UPSI laid down under the 2015 Regulations grants SEBI the ability to analyse,
on a case by case basis, whether certain information is available on a non-discriminatory
basis, thus achieving the balance of regulation.

CONCLUSION

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The SEBI is a regulatory body which is twenty-three years old and the capital market system
is more than 103 years old. This matured capital market system requires monitoring rather
than Over-regulation. There should be cross-border cooperation among all sorts’ regulators
and between regulators and profession. The SEBI should supervise this capital market system
in such a manner that all sub-systems become self-regulatory organisations (SROs) gradually.
The SEBI should lay down the boundaries within which these sub-systems should operate.
Moreover, the fundamental infrastructure for regulation, disclosure, surveillance and trading
are all in place. Hence, the SEBI should stop being pre-occupied with day-to-day regulations
and become more of a visionary. Securities Exchange Board of India has enjoyed success as a
regulator by pushing systematic reforms aggressively and respectively.

BIBLIOGRAPHY:

BOOKS:

1. Singh Avatar, Company Law, Journal JAN-MAR2002

2. Taxman Student Guide to Company Law, Majumdar AK | Kapoor GK, Edition 2002
3. Company Law, Kapoor ND, New Delhi Sultan Chand & Sons- 2009
4. Company Law, Gulshan SS, Edition 13th
5. Companies Act with SEBI Guidelines, Taxman’s, Edition 8th
6. SEBI Act, Agarwal Sumit | Baby Robbin Joseph, New Delhi Taxman 2011
7. Companies Act with SEBI rules/ regulations and Guidelines Volume 1, Taxman
Publication Ltd., Edition 28th
8. Companies Act with SEBI rules/ regulations and Guidelines Volume 2, Taxman
Publication Ltd., Edition 28th

ONLINE ARTICLES:

1. Dr. V. Neelaveni, International Monthly Referred Journal of Research Management &

Technology
2. International Journal of Research in IT and Management, 2017

WEBSITES:

1. http://www. sebi.gov.in
2. www.managementparadise.com/.../201849-regulatory-framework-under-sebi.html >
accessed on 24 September 2019

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3. https://blog.ipleaders.in/role-sebi-regulating-primary-market-securities > accessed on
24 September 2019
4. https://www.sebi.gov.in/sebiweb/home/HomeAction.do?
doListing=yes&sid=1&ssid=3&smid=0 > accessed on 24 September 2019

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