Investment Law

(LAW455)
Project

Topic: About SEBI

Submitted to Submitted by
Ms. Ekta Rose Abhyudaya Tiwari

Faculty (A8111120147)

Amity Law School B.A.L.L.B.(HONS.), VIII

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 INDEX

TOPICS PAGES

➢ Introduction 3

➢ Insider Trading and SEBI Powers 5

➢ Powers Given To SEBI 6

➢ Schemes 8

➢ Functions Of SEBI For Investor’s Protection 8

➢ Bibliography 11

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Introduction
The Securities and Exchange Board of India (SEBI) is the regulatory authority tasked with overseeing
and regulating the securities market in India. Established in 1988, SEBI plays a crucial role in promoting
transparency, protecting investor interests, and ensuring the smooth functioning and development of the
securities market. The key functions of SEBI include:

1. Regulation and Oversight:

- SEBI formulates regulations and guidelines to govern various participants in the securities market,
including stock exchanges, brokers, depositories, and other intermediaries.
- It oversees the implementation of these regulations to ensure fair and transparent dealings in the
market.

2. Investor Protection:
- SEBI is committed to safeguarding the interests of investors by promoting transparency and ensuring
that they receive accurate and timely information about securities.
- It enforces rules related to disclosure of material information by companies to prevent insider trading
and fraudulent activities.

3. Development of the Market:

- SEBI takes measures to foster the growth and development of the securities market. This includes
introducing new financial instruments, adopting advanced technologies, and facilitating innovations to
enhance market efficiency.
- The regulatory body strives to create a conducive environment that encourages investment and
participation from various market players.

4. Regulation of Market Intermediaries:

- SEBI regulates and registers various market intermediaries, such as stockbrokers, sub-brokers,
depository participants, and merchant bankers.
- It ensures that these intermediaries adhere to ethical standards, comply with regulations, and
maintain the integrity of the market.

1. SEBI - Securities and Exchange Board of India, "About SEBI," sebi.gov.in.

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5. Surveillance and Enforcement:
- SEBI conducts surveillance of market activities to detect and prevent market manipulation, insider
trading, and other fraudulent practices.
- The regulatory body has the authority to take enforcement actions against entities found violating
securities laws, imposing fines and penalties as necessary.

6. Educational Initiatives:
- SEBI undertakes educational initiatives to enhance investor awareness and knowledge about the
securities market. This includes disseminating information, conducting workshops, and promoting
financial literacy.

7. Registration of Securities:
- SEBI oversees the process of issuing and listing securities on stock exchanges. It ensures that
companies comply with regulatory requirements before making their securities available to the public.

Overall, SEBI's functions are geared towards creating a fair, transparent, and well-regulated
environment that instills confidence in investors and fosters the growth and stability of the Indian
securities market.

1. Business Standard, "About SEBI," business-standard.com.

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2. Insider Trading and SEBI's Powers:

Insider Trading:
Insider trading refers to the buying or selling of a security by individuals who have access to non-public,
material information about the security. This information gives them an unfair advantage over other
market participants, leading to an imbalance of information and potential market abuse.

SEBI's Powers to Prevent Insider Trading:

SEBI, under the Securities and Exchange Board of India Act, 1992, has been granted extensive powers
to regulate and prevent insider trading. Some of these powers include:

- Conducting Inquiries:
- SEBI has the authority to conduct inquiries into insider trading activities. This involves investigating
suspicious transactions and gathering evidence to identify individuals involved in such practices.

- Inspection of Records:
- SEBI can inspect the books, records, and documents of market participants, including companies and
intermediaries, to ensure compliance with insider trading regulations.
- The regulatory body may examine communication records, financial statements, and other relevant
documents to detect any irregularities.

- Search and Seizure:

- SEBI has the power to conduct searches and seizures in cases where there is reasonable cause to
believe that insider trading has taken place.
- This involves seizing documents, electronic devices, or any other material that could serve as
evidence in proving insider trading violations.

1. Securities and Exchange Board of India Act, 1992.

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- Freezing of Assets:
- SEBI can order the freezing of assets, including bank accounts and other financial instruments, if it
believes that such measures are necessary to prevent individuals from disposing of ill-gotten gains.

- Imposing Penalties:
- SEBI can impose significant penalties on individuals found guilty of insider trading. Penalties may
include monetary fines, suspension from trading, or debarment from the securities market.

- Cooperation with Law Enforcement:

- SEBI can collaborate with law enforcement agencies to ensure effective investigation and
prosecution of insider trading cases. This may involve sharing information and coordinating efforts to
bring offenders to justice.

Case Laws:
- Ketan Parekh Case: The Ketan Parekh securities scam in 2001 led to increased scrutiny by SEBI. The
regulatory body took various measures to enhance transparency and prevent market manipulation.

- Rajat Gupta Case: The high-profile Rajat Gupta case involved insider trading charges in the United
States, highlighting the need for global cooperation in tackling insider trading activities.

3. Powers Given to SEBI by the Securities and Exchange Board of India Act,
1992:

The Securities and Exchange Board of India Act, 1992, empowers SEBI with wide-ranging authority to
regulate and oversee the securities market in India. Key powers granted to SEBI include:

1. Securities and Exchange Board of India, "SEBI Orders Ketan Parekh, Others to Pay Rs 1,000
Crore," business-standard.com; The Economic Times, "Rajat Gupta Insider Trading Case: A
Timeline of Events," economictimes.indiatimes.com.
2. Securities and Exchange Board of India Act, 1992.

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- Regulation and Development of Securities Market:
- SEBI is entrusted with the responsibility to regulate and develop the securities market to protect the
interests of investors and promote market integrity.

- Registration of Intermediaries:
- SEBI has the authority to register and regulate various market intermediaries, including stockbrokers,
sub-brokers, depository participants, and merchant bankers.

- Monitoring and Supervision:

- SEBI can monitor and supervise the activities of stock exchanges, mutual funds, and other entities to
ensure compliance with regulatory norms.

- Imposing Penalties:
- SEBI has the power to impose penalties on individuals and entities for violations of securities laws,
including insider trading, market manipulation, and non-compliance with disclosure requirements.

- Investigation and Inquiry:

- SEBI can conduct investigations and inquiries into potential violations of securities laws, including
the power to summon witnesses and examine records.

- Adjudication:
- SEBI can adjudicate on matters related to securities law violations, issuing orders and imposing
penalties based on the findings of investigations.

- Appeals:
- The Act provides for an appellate mechanism, allowing parties aggrieved by SEBI's orders to appeal
to the Securities Appellate Tribunal (SAT).

- Collaboration with Other Authorities:

- SEBI can collaborate with other regulatory authorities and law enforcement agencies, both in India
and internationally, to effectively regulate and investigate securities market activities.

1. Securities and Exchange Board of India, "SEBI Orders Sahara to Refund Rs 24,029 Crore with
Interest," sebi.gov.in; Livemint, "Price Waterhouse Ban: A Timeline of Events," livemint.com.

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Case Laws:
- SEBI v. Sahara India Real Estate Corp. Ltd.: This landmark case dealt with the issue of raising funds
from the public and highlighted SEBI's authority to regulate collective investment schemes.

- SEBI v. Price Waterhouse: This case examined the role and responsibilities of auditors in ensuring
corporate governance and financial disclosure, emphasizing SEBI's role in safeguarding investor
interests.

The Securities and Exchange Board of India Act, 1992, has been instrumental in empowering SEBI to
maintain the integrity of the securities market and protect the interests of investors. The Act, along with
subsequent amendments, has strengthened SEBI's regulatory framework, making it a key player in
India's financial landscape.

4. Schemes Not Considered Collective Investment Schemes:

Collective Investment Schemes (CIS) typically involve pooling funds from multiple investors for
investment purposes. However, certain schemes are not considered CIS. These include:

- Schemes for Exclusively Family Members: If a scheme is meant for members of the same family and
does not invite the public, it might not be classified as a CIS.

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- Employee Welfare Schemes: Schemes exclusively for employees and their benefits are generally not
considered CIS.

- Employee Stock Option Schemes (ESOPs): ESOPs, which involve the issuance of securities to
employees as part of their remuneration, are not treated as CIS.

- Insurance Policies: Traditional insurance policies that are regulated by the Insurance Regulatory and
Development Authority of India (IRDAI) are not considered CIS.

5. Functions of SEBI for Investor Protection (Section 11):

The functions of SEBI, as defined in Section 11 of the Securities and Exchange Board of India Act,
1992, with respect to the protection of the interests of investors in securities include:

- Regulating Securities Market:

- SEBI is mandated to regulate and develop the securities market to ensure fair practices and protect
the interests of investors.

- Preventing Fraudulent and Unfair Trade Practices:

- SEBI works to prevent fraudulent and unfair trade practices, including insider trading and market
manipulation, to maintain market integrity.

- Promoting Investor Education and Awareness:

- SEBI undertakes initiatives to educate and create awareness among investors, helping them make
informed investment decisions.

- Prohibiting Insider Trading:

- SEBI is empowered to prohibit insider trading and ensure that individuals with access to non-public
information do not take advantage of their privileged position.

1. Bajaj Finserv, "What is SEBI?" bajajfinserv.in.

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- Registering and Regulating Intermediaries:
- SEBI registers and regulates various market intermediaries, such as stockbrokers and mutual funds,
to ensure compliance with ethical standards.

- Conducting Research and Surveillance:

- SEBI conducts research and surveillance to monitor market activities, detect potential violations, and
take timely preventive measures.

- Imposing Penalties:
- SEBI has the authority to impose penalties on entities and individuals found guilty of violating
securities laws, thus acting as a deterrent against malpractices.

6. Powers Given to SEBI by the Securities and Exchange Board of India Act,
1992:

SEBI's powers under the Securities and Exchange Board of India Act, 1992, are broad and
comprehensive. Some key powers include:

- Regulation of Securities Market:

- SEBI has the authority to regulate the securities market and protect the interests of investors.

- Registration and Regulation of Intermediaries:

- SEBI can register and regulate various market intermediaries, including stockbrokers, sub-brokers,
depository participants, and mutual funds.

- Inspection and Inquiry:

- SEBI can conduct inspections and inquiries into the books, records, and documents of market
participants to ensure compliance with regulations.

- Adjudication and Penalty Imposition:

- SEBI can adjudicate on matters related to securities law violations and impose penalties on
individuals and entities found guilty of such violations.

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- Investigative Powers:
- SEBI has investigative powers, including the ability to summon witnesses, examine records, and
conduct searches and seizures in cases of suspected market misconduct.

- Promoting Investor Education:

- SEBI is tasked with promoting investor education and awareness to empower investors with the
knowledge needed to make informed decisions.

Relevant Case Law:

-Securities and Exchange Board of India v. Sahara India Real Estate Corp. Ltd. & Ors.: This case is
significant as it dealt with issues related to raising funds from the public and the powers of SEBI to
regulate collective investment schemes.

- Securities and Exchange Board of India v. Price Waterhouse: This case examined the role and
responsibilities of auditors in ensuring corporate governance and financial disclosure, emphasizing
SEBI's role in safeguarding investor interests.

These case laws underscore the significance of SEBI's powers in regulating the securities market and
protecting the interests of investors. They provide legal precedents for the interpretation and application
of the Securities and Exchange Board of India Act, 1992.

1. Securities and Exchange Board of India, "SEBI at a Glance,"

[https://www.sebi.gov.in/sebiweb/other/OtherAction.do?doRecognisedFpi=yes&intmId=7]
2. Securities and Exchange Board of India Act, 1992.

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Bibliography

• sebi.gov.in
• wiki/Securities_and_Exchange_Board_of_India
• https://www.business-standard.com/aboutsebi
• https://www.bajajfinserv.in/what-is-sebi

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