Business law project
Establishment, powers, and functions of sebi (sebi Act, 1992) Submitted to: Dr. Deepak Thakur (Faculty. UILS, Panjab Unier!ity, "handi#arh$
Submitted %y: Somnath Tayal Tayal %.&.LL% ('on!.$ oll )o.:*+- /th Sem
&"0)12L3D4353)T I have written this project titled 63!tabli!hment, Po7er!, and Function! o8 S3%I9 under the supervision of 6D. Deepak Thakur9 faculty of University Institute of Legal Studies, Panjab University, Chandigarh. The valuable suggestions of her supervision not only helped e iensely in a!ing this wor!, but also in developing an analytical approach in wor!. I found no words to e"press y sense of gratitude for #$I%&CT'%( of our institute for encourageent at every step . I a e"treely grateful to librarian and library staff of the institute for the support and cooperation e"tended tie to tie. )lso, y Parents and *riends contribution, support and cooperation in this wor! is beyond words.
Sonath Tayal %oll no. +-
I)D3 -/ Introduction 0000000000000000000000000.. 1/ &stablishent 0000000000000000000000000;<= 2anageent of 3oard 000000000000000000..45 • %eoval of eber fro office 000000000..00000 • 2eetings 000000000000000000000000 • / Powers and *unctions 0000000000000000000000/<-; 4/ Conclusion 00000000000000000000000000.-; / 3ibliography 0000000000000000000000000..-+
I)T1DU"TI1) Securities &"change 3oard of India 6S&3I/ was set up in -+77 to regulate the functions of securities ar!et. S&3I prootes orderly and healthy developent in the stoc! ar!et but initially S&3I was not able to e"ercise coplete control over the stoc! ar!et transactions. 8ith the growth in the dealings of stoc! ar!ets, lot of alpractices also started in stoc! ar!ets such as price rigging, 9unofficial preiu on new issue, and delay in delivery of shares, violation of rules and regulations of stoc! e"change and listing re:uireents. $ue to these alpractices the custoers started losing confidence and faith in the stoc! e"change. So governent of India decided to set up an agency or regulatory body !nown as Securities &"change 3oard of India 6S&3I/. It was left as a watch dog to observe the activities but was found ineffective in regulating and controlling the. )s a result in 2ay -++1, S&3I was granted legal status. S&3I is a body corporate having a separate legal e"istence and perpetual succession.in -++, the S&3I was given additional statutory power by the ;overnent of India through an aendent to the Securities and &"change 3oard of India )ct, -++1. S&3I was set up with the ain purpose of !eeping a chec! on alpractices and protect the interest of investors. It was set up to eet the needs of three groups. These are<5 •
Issuers: *or issuers it provides a ar!et place in which they can raise finance fairly
•
and easily. Investors<*or investors it provides protection and supply of accurate and correct
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inforation. Intermediaries<*or interediaries it provides a copetitive professional ar!et.
The overall objectives of S&3I are to protect the interest of investors and to proote the developent of stoc! e"change and to regulate the activities of stoc! ar!et. It prevent fraudulent and alpractices by having balance between self5regulation of business and its statutory regulations. In this project the establishent, powers and functions of S&3I have been discussed in detail in accordance with the provisions of the Securities and &"change 3oard of India )ct, -++1.
3ST&%LIS'53)T Chapter 2 of the S&3I )ct, -++1 provides for the establishent and incorporation of the board. Section 3 provides that a board by the nae of the Securities and &"change 3oard of India shall be established by the Central ;overnent with effect fro the date notified by the. It further provides that the board shall be a body corporate, having perpetual s uccession and a coon seal, with power subject to the provisions of this )ct, to ac:uire, hold and dispose of property, both ovable and iovable, and to contract, and shall, by the said nae, sue or be sued. Sub-section (3) states that the head office of the board shall be at 3obay. =owever, the 3oard ay establish offices at other places in India.
5ana#ement o8 the %oard:< )ccording to section 4, the S&3I is anaged by its ebers, which consists of following< -. ) chairan who is noinated by Union ;overnent of India. 1. Two ebers, i.e., 'fficers fro Union *inance 2inistry and adinistration of the Copanies )ct, -+> 6- of -+>/. . 'ne eber fro the %eserve 3an! of India. 4. The reaining five ebers are noinated by Union ;overnent of India, out of the at least three shall be whole5tie ebers. The general superintendence, direction and anageent of the affairs of the 3oard is vested in a 3oard of ebers, which ay e"ercise all powers and do all acts and things which ay be e"ercised or done by the 3oard. The Chairan also has powers of general superintendence and direction of the affairs of the 3oard and ay also e"ercise all powers and do all acts and things which ay be e"ercised or done by that 3oard. This section re:uires that the Chairan and the other ebers shall be persons of ability, integrity and standing who have shown capacity in dealing with probles relating to
securities ar!et or have special !nowledge or e"perience of law, finance, econoics, accountancy, adinistration or in any other discipline which, in the opinion of the Central ;overnent, shall be useful to the 3oard. Section 5 provides that the ter of office and other conditions of service of the Chairan and the ebers shall be such as ay be prescribed. The Central ;overnent shall have the right to terinate the services of the Chairan or a eber appointed under clause 6d / of sub5 section 6-/ of section 4, at any tie before the e"piry of the period prescribed, by giving hi notice of not less than three onths in writing or three onths9 salary and allowances in lieu thereof, and the Chairan or a eber, as the case ay be, shall also have the right to relin:uish his office, at any tie before the e"piry of the period prescribed, by giving to the Central ;overnent notice of not less than three onths in writing.
emoal o8 member 8rom o88ice:< Section 6 provides that the Central ;overnent shall reove a eber fro office if he? -/ is, or at any tie has been, adjudicated as insolvent@ 1/ is of unsound ind and stands so declared by a copetent court@ / has been convicted of an offence which, in the opinion of the Central ;overnent, involves a oral turpitude@ 4/ has, in the opinion of the Central ;overnent, so abused his position as to render his continuation in office detriental to the public interest. Provided, that no eber shall be reoved under this clause unless he has been given a reasonable opportunity of being heard in the atter.
5eetin#!:< Section 7 provides the following provisions regarding the eetings of the board<5 -/ The 3oard shall eet at such ties and places, and shall observe such rules of procedure in regard to the transaction of business at its as ay be provided by regulations. 1/ If the Chairan he is unable to attend a eeting of the 3oard, any other eber chosen by the ebers present fro aongst theselves at the eeting shall preside at the eeting.
/ )ll :uestions which coe up before any eeting of the 3oard shall be decided by a ajority votes of the ebers present and voting, and, in the event of an e:uality of votes, the Chairan, or in his absence, the person presiding, shall have a second or casting vote. Section 7A of the act states that any eber, who is a director of a copany and who as such director has any direct or indirect pecuniary interest in any atter coing up for consideration at a eeting of the 3oard, shall, as soon as, disclose the nature of his interest at such eeting and such disclosure shall be recorded in the proceedings of the 3oard, and the eber shall not ta!e any part in any deliberation or decision of the 3oard with respect to that atter. Section provides that no act or proceeding of the 3oard shall be invalid erely by reason of ? a/ any vacancy in, or any defect in the constitution of, the 3oard@ b/ 6b/ any defect in the appointent of a person acting as a eber of the 3oard@ c/ 6c/ any irregularity in the procedure of the 3oard not affecting the erits of the case. Section + states that the 3oard ay appoint such other officers and eployees as it considers necessary for the efficient discharge of its functions under this )ct.The ter and other conditions of service of officers and eployees of the 3oard appointed under section + shall be such as ay be deterined by regulations.
P123S &)D FU)"TI1)S Chapter 4 of the S&3I )ct, -++- deals with powers and functions of the board. The Preable of the Securities and &"change 3oard of India describes the basic functions of the Securities and &"change 3oard of India as to protect the interests of investors in securities and to proote the developent of, and to regulate the securities ar!et and for atters connected therewith or incidental thereto.S&3I has three functions rolled into one body< :uasi5 legislative, :uasi5judicial and :uasi5e"ecutive.It drafts regulations in its legislative capacity, it conducts investigation and enforceent action in its e"ecutive function and it passes rulings and orders in its judicial capacity. Section !! of the )ct provides the functions and also soe powers of the board which are listed below<5 -/ It shall be the duty of the 3oard to protect the interests of investors in securities and to proote the developent of, and to regulate the securities ar!et, by such easures as it thin!s fit. 1/ 8ithout prejudice to the generality of the foregoing provisions, the easures referred to therein ay provide for? regulating the business in stoc! e"changes and any other securities ar!ets@ registering and regulating the wor!ing of stoc! bro!ers, sub5bro!ers, share transfer agents, ban!ers to an issue, trustees of trust deeds, registrars to an issue, erchant ban!ers, underwriters, portfolio anagers, investent advisers and such other interediaries who ay be associated with securities ar!ets in any
anner@ registering and regulating the wor!ing of the depositories, participants, custodians of securities, foreign institutional investors, credit rating agencies and such other
interediaries as the 3oard ay, by notification, specify in this behalf@ registering and regulating the wor!ing of venture capital funds and collective investent scheesA, including utual funds@ prooting and regulating self5regulatory organisations@ prohibiting fraudulent and unfair trade practices relating to securities ar!ets@
prooting investors9 education and training of interediaries of securities ar!ets@ prohibiting insider trading in securities@ regulating substantial ac:uisition of shares and ta!eover of copanies@ calling for inforation fro, underta!ing inspection, conducting in:uiries and audits of the stoc! e"changes, utual funds, other persons associated with the securities ar!et, interediaries and self5regulatory organisations in the securities
ar!et@ calling for inforation and records fro any person including any ban! or any other authority or board or corporation established or constituted by or under any Central or State )ct which, in the opinion of the 3oard, shall be relevant to any
investigation or in:uiry by the 3oard in respect of any transaction in securities@ calling for inforation fro, or furnishing inforation to, other authorities, whether in India or outside India, having functions siilar to those of the 3oard, in the atters relating to the prevention or detection of violations in respect of securities laws, subject to the provisions of other laws for the tie being in force in this regard< Provided that the 3oard, for the purpose of furnishing any inforation to any authority outside India, ay enter into an arrangeent or agreeent or understanding with such authority with the prior approval of the
Central ;overnent@ perforing such functions and e"ercising such powers under the provisions of the Securities Contracts 6%egulation/ )ct, -+> 641 of -+>/, as ay be delegated to
it by the Central ;overnent@ levying fees or other charges for carrying out the purposes of this section@ conducting research for the above purposes@ calling fro or furnishing to any such agencies, as ay be specified by the 3oard, such inforation as ay be considered necessary by it for the efficient discharge
of its functions@ perforing such other functions as ay be prescribed. / The 3oard ay ta!e easures to underta!e inspection of any boo!, or register, or other docuent or record of any listed public copany or a public copany which intends to get its securities listed on any recognised stoc! e"change where the 3oard has reasonable grounds to believe that such copany has been indulging in insider trading or fraudulent and unfair trade practices relating to securities ar!et.
4/ The 3oard shall have the sae powers as are vested in a civil court under the Code of Civil Procedure, -+B7 6 of -+B7/, while trying a suit, in respect of the following atters, naely
place and such tie as ay be specified by the 3oard@ suoning and enforcing the attendance of persons and e"aining the on
oath@ inspection of any boo!s, registers and other docuents of any person referred to
in section -1, at any place@ inspection of any boo!, or register, or other docuent or record of the copany@ issuing coissions for the e"aination of witnesses or docuents. / The 3oard ay, by an order, for reasons to be recorded in writing, in the interests of investors or securities ar!et, ta!e any of the following easures, either pending investigation or in:uiry or on copletion of such investigation or in:uiry, naely
associated with securities ar!et to buy, sell or deal in securities@ suspend any office5bearer of any stoc! e"change or self5regulatory organisation
fro holding such position@ ipound and retain the proceeds or securities in respect of any transaction which
is under investigation@ attach, after passing of an order on an application ade for approval by the udicial 2agistrate of the first class having jurisdiction, for a period not e"ceeding one onth, one or ore ban! account or accounts of any interediary or any person associated with the securities ar!et in any anner involved in violation of any of the provisions of this )ct, or the rules or the regulations ade thereunder < Provided that only the ban! 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 )ct, or the rules or the regulations ade thereunder
shall be allowed to be attached@ direct any interediary or any person associated with the securities ar!et in any anner not to dispose of or alienate an asset foring part of any transaction which is under investigation. the 3oard shall, either before or after passing such orders, give an opportunity of hearing to such interediaries or persons concerned.
Section !!A epowers the 3oard to regulate or prohibit issue of prospectus, offer docuent or advertiseent soliciting oney for issue of securities. It provides that the 3oard ay, for the protection of investors,? -/ specify, by regulations? the atters relating to issue of capital, transfer of securities and other atters incidental thereto@ and the anner in which such atters shall be disclosed by the copanies@ 1/ by general or special orders? prohibit any copany fro issuing prospectus, any offer docuent, or
advertiseent soliciting oney fro the public for the issue of securities@ specify the conditions subject to which the prospectus, such offer docuent or advertiseent, if not prohibited, ay be issued.
The 3oard ay specify the re:uireents for listing and transfer of securities and other atters incidental thereto. Section !!" further gives power to the 3oard to issue directions. If after a!ing or causing to be ade an en:uiry, the 3oard is satisfied that it is necessary,? i. ii.
in the interest of investors, or orderly developent of securities ar!et@ or to prevent the affairs of any interediary or other persons referred to in section -1 being conducted in a anner detriental to the interest of investors or securities
iii.
ar!et@ or to secure the proper anageent of any such interediary or person, it ay issue such directions,? to any person or class of persons referred to in section -1, or associated with the
securities ar!et@ orto any copany in respect of atters specified in section --), as ay be appropriate in the interests of investors in securities and the securities ar!et.
The power to issue directions under this section includes the power to direct any person, who ade profit or averted loss by indulging in any transaction or activity in contravention of the provisions of this )ct or regulations ade thereunder, to disgorge an aount e:uivalent to the wrongful gain ade or loss averted by such contravention. )lso the aount disgorged, pursuant to a direction issued, under this section is to be credited to the Investor Protection and &ducation *und established by the 3oard and such aount shall be utilised by the 3oard in accordance with the regulations ade under this )ct.
Section !!C provides the board with the powers regarding investigation, It states<5 -/ 8here the 3oard has reasonable ground to believe that? the transactions in securities are being dealt with in a anner detriental to the
investors or the securities ar!et@ or any interediary or any person associated with the securities ar!et has violated any of the provisions of this )ct or the rules or the regulations ade or directions issued by the 3oard thereunder,
it ay, at any tie by order in writing, direct any person 6hereafter in this section referred to as the Investigating )uthority/ specified in the order to investigate the affairs of such interediary or persons associated with the securities ar!et and to report thereon to the 3oard. 1/ It shall be the duty of every anager, anaging director, officer and other eployee of the copany and every interediary or every person associated with the securities ar!et to preserve and to produce to the Investigating )uthority or any person authorised by it in this behalf, all the boo!s, registers, other docuents and record of, or relating to, the copany or, as the case ay be, of or relating to, the interediary or such person, which are in their custody or power. / The Investigating )uthority ay re:uire any interediary or any person associated with securities ar!et in any anner to furnish such inforation to, or produce such boo!s, or registers, or other docuents, or record before hi or an y person authorised by it in this behalf as it ay consider necessary if the furnishing of such inforation or the production of such boo!s, or registers, or other docuents, or record is relevant or necessary for the purposes of its investigation. 4/ The Investigating )uthority ay !eep in its custody any boo!s, registers, other docuents and record for si" onths and thereafter shall return the sae to any interediary or any person associated with securities ar!et by who or on whose behalf the boo!s, registers, other docuents and record are produced < Provided that the Investigating )uthority ay call for any boo!, register, other docuent and record if they are needed again and further that if the person on whose behalf the boo!s, registers, other docuents and record are produced re:uires certified copies of the boo!s, registers, other docuents and record produced before the Investigating )uthority, it shall give certified copies of such boo!s, registers, other
docuents and record to such person or on whose behalf the boo!s, registers, other docuents and record were produced. / )ny person, directed to a!e an investigation under sub5section 6-/, ay e"aine on oath, any anager, anaging director, officer and other eployee of any interediary or any person associated with securities ar!et in any anner, in relation to the affairs of his business and ay adinister an oath accordingly and for that purpose ay re:uire any of those persons to appear before it personally. >/ If any person fails without reasonable cause or refuses? to produce to the Investigating )uthority or any person authorised by it in this behalf any boo!, register, other docuent and record which is his duty to
produce@ or to furnish any inforation which is his duty to furnish@ or to appear before the Investigating )uthority personally when re:uired to do so or to answer any :uestion which is put to hi by the Investigating )uthority@ orto sign the notes of any e"aination.
he shall be punishable with iprisonent for a ter which ay e"tend to one year, or with fine, which ay e"tend to one crore rupees, or with both, and also with a further fine which ay e"tend to five la!h rupees for every day after the first during which the failure or refusal continues. D/ Eotes of any e"aination shall be ta!en down in writing and shall be read over to, or by, and signed by, the person e"ained, and ay thereafter be used in evidence against hi. 7/ 8here in the course of investigation, the Investigating )uthority has reasonable ground to believe that the boo!s, registers, other docuents and record of, or relating to, any interediary or any person associated with securities ar!et in any anner, ay be destroyed, utilated, altered, falsified or secreted, the Investigating )uthority ay a!e an application to the 2agistrate or udge of such designated court in 2ubai, as ay be notified by the Central ;overnent for an order for the seiFure of such boo!s, registers, other docuents and record. +/ The authorised officer ay re:uisition the services of any police officer or any officer of the Central ;overnent, or of both, to assist hi for all or any of the purposes and it shall be the duty of every such officer to coply with such re:uisition.
-B/ )fter considering the application and hearing the Investigating )uthority, if necessary, 4BGthe 2agistrate or udge of the $esignated CourtA ay, by order, authorise the Investigating )uthority H to enter, with such assistance, as ay be re:uired, the place or places where such
boo!s, registers, other docuents and record are !ept@ to search that place or those places in the anner specified in the order@ and to seiFe boo!s, registers, other docuents and record, it considers necessary for the purposes of the investigation<
Provided that the 2agistrate or udge of the $esignated Court shall not authorise seiFure of boo!s, registers, other docuents and record, of any listed public copany or a public copany which intends to get its securities listed on any recognised stoc! e"change unless such copany indulges in insider trading or ar!et anipulation. --/ The Investigating )uthority shall !eep in its custody the boo!s, registers, other docuents and record seiFed under this section for such period not later than the conclusion of the investigation as it considers necessary and thereafter shall return the sae to the copany or the other body corporate, or, as the case ay be, to the anaging director or the anager or any other person, fro whose custody or power they were seiFed and infor the 2agistrate or udge of the $esignated Court of such return< Provided that the Investigating )uthority ay, before returning such boo!s, registers, other docuents and record as aforesaid, place identification ar!s on the or any part thereof. Lastly, Section !!# vests the board with the power to cease and desist proceedings.If the 3oard finds, after causing an in:uiry to be ade, that any person has violated, or is li!ely to violate, any provisions of this )ct, or any rules or regulations ade thereunder, it ay pass an order re:uiring such person to cease and desist fro coitting or causing such violation< Provided that the 3oard shall not pass such order in respect of any listed public copany or a public copany which intends to get its securities listed on any recognised stoc! e"change unless the 3oard has reasonable grounds to believe that such copany has indulged in insider trading or ar!et anipulation.
)ll these sections i.e. section -- to --$, &ncopass all the statutory functions and powers of the S&3I.
"1)"LUSI1) It is clear that the Securities and &"change 3oard of India 6S&3I/ is the regulator for the securities ar!et in India.Initially S&3I was a non5statutory body without any statutory power. It was given statutory powers in -++1 with S&3I )ct -++1 being passed by the Indian Parliaent. The )ct not only provided with its detailed establishent but also listed the functions to be perfored by S&3I and vested it with vast powers necessary for discharging all its functions in a proficient anner. The overall objectives of S&3I are to protect the interest of investors and to proote the developent of stoc! e"change and to regulate the activities of stoc! ar!et, to regulate the activities of stoc! e"change to protect the rights of investors and ensuring safety to their ,
investent, to prevent fraudulent and alpractices by having balance between self5regulation of business and its statutory regulations to regulate and develop a code of conduct for ,
interediaries such as bro!ers, underwriters, etc.The S&3I perfors functions to eet its objectives. To eet three objectives S&3I has three iportant functions. These are
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