A PROJECT REPORT ON

SEBI AS A REGULATOR OF CAPITAL MARKET

SUBMITTED
IN PARTIAL FULFILMENT OF THE COURSE IN
FINANCIAL MARKET
AT
MASTER OF COMMERCE
BANKING & FINANCE
SEMESTER III
(2018-2019)
SUBMITTED BY
MANTASHA HASAN SAYED
ROLL NO. 43
UNDER THE GUIDANCE OF
PROF. DEEP GOSRANI
S. K. SOMAIYA DEGREE COLLEGE OF ARTS,
SCIENCE AND COMMERCE
AUROBINDO, VIDYANAGAR, VIDYAVIHAR (EAST),
MUMBAI-77.
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 CERTIFICATE

This Is To Certify That Ms. MANTASHA HASAN SAYED of M.Com- Banking &
Finance- Semester III (2018-2019) has Successfully completed the project
work entitled SEBI AS A REGULATOR OF CAPITAL MARKET Under The
Guidance Of Prof. DEEP GOSRANI

____________________________ _________________________
Project Guide/ Internal Examiner External Examiner
(Prof. DEEP GOSRANI) ( )

_________________________ ________________________
Course Co-ordinator Principal
(RAVIKANT SANGURDE) (Dr. MANALI LONDHE)

DATE:
PLACE:

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 DECLARATION

I, MANTASHA HASAN SAYED, student of M.Com (Banking & Finance)

Semester III of S.K. Somaiya College Of Arts, Science & Commerce hereby
declare that I have completed the project on SEBI AS A REGULATOR OF
CAPITAL MARKET for the academic year (2018-2019)

The information presented through this project is true and original to the
best of my knowledge.

______________________________________ _______________________________
GUIDED BY: MANTASHA HASAN SAYED
Roll no: 43

Date:
Place:

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 ACKNOWLEDGEMENT

Success is never achieved single handed so, it is our duty to acknowledge all
those who have provided a helping hand in making this project a success.

Firstly, I would like to express my deep sense of gratitude towards my

project guide Prof. Deep Gosrani for valuable guidance, co-operation and
approval given in successful completion of this project work.

I also wish to express my sincere gratitude to ______________________________,

Principal of S. K. Somaiya College for providing me an opportunity to do my
project work on “SEBI AS A REGULATOR OF CAPITAL MARKET”. This project
bears an imprint of many people.

Last but not the least a great deal of appreciation and best wishes to all my
friend for their contribution and encouragement during this work.

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 INDEX

Sr. No. Particulars Pg. No.

1) SEBI: INTRODUCTION 7

2) HISTORY 9

3) MISSION & OBJECTIVES OF SEBI 14

4) POWER AND FUNCTIONS OF SEBI 16

5) DEPARTMENTS OF SEBI AND ITS FUNCTIONS 19

6) CAPITAL MARKET 28

7) CAPITAL MARKET IN INDIA 29

8) ROLE OF SEBI 31

9) PRIMARY MARKET 33

10) SECONDARY MARKET 39

11) STOCK EXCHANGE 42

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12) FINANCE, ACCOUNTS AND AUDIT OF SEBI 46

13) PENALTIES FOR FAILURES 47

14) SEBI (SETTLEMENT OF ADMINISTRATIVE & CIVIL 52

PROCEEDINGS) REGULATIONS, 2014

15) SEBI (PROCEDURE FOR SEARCH AND SEIZURE) 54

REGULATIONS, 2014

16) INVESTIGATION BY SEBI 60

17) SECURITIES APPELLATE TRIBUNAL (SAT) 63

18) SEBI AS A REGULATOR 67

19) CONCLUSION 70

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 INTRODUCTION

The SEBI, that is, The Securities And Exchange Board Of India, is the national regulatory body
for the securities market, set up under The Securities And Exchange Board Of India Act, 1992,
to “protect the interest of investors in securities and to promote the development of, and to
regulate the securities market and for matters connected therewith and incidental too.”

SEBI has its head office in Mumbai and it has now set up regional offices in the
metropolitan cities of Delhi, Kolkata and Chennai. The Board of SEBI comprises a Chairman,
two members from the Central Government representing the ministries of finance and law, one
member from the Reserve Bank Of India and two other members appointed by the Central
Government.

As per the SEBI Act, 1992, the power and functions of the Board encompass the regulation
of Stock Exchanges and other securities markets; registration and regulation of the working
stock brokers, sub-brokers, bankers to an issue (a public of capital), trustees of trust deeds,
registrars to an issues, merchant bankers, under writers, portfolio managers, investment
advisors and such other intermediaries who may be associated with the stock market in any
way; registration and regulations of mutual funds; promotion and regulation of self-regulatory
organizations; prohibiting fraudulent and unfair trade practices and insider trading in securities
markets; regulating substantial acquisition of shares and takeover of companies; calling for
information from, undertaking inspection conducting inquiries and audits of stock exchanges,
intermediaries and self-regulatory organizations of the securities market; performing such
functions and exercising such powers as contained in the provisions of the Capital Issues
(Control) Act, 1947 and the Securities Contracts (Regulation) Act, 1956, levying various fees

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and other charges, conducting necessary research for above purposes and performing other
functions as may be prescribed from time to time.

SEBI as the watchdog of the industry has an important and crucial role in the market in
ensuring that the market participants perform their duties in accordance with the regulatory
norms. The Stock Exchange as a responsible Self-Regulatory Organization (SRO) functions to
regulate the market and its prices as per the prevalent regulations. SEBI and the Exchange play
complimentary roles to enhance the investor protection and the overall quality of the market.

SECURITIES AND EXCHANGE BOARD OF INDIA:-

SEBI:- What does Securities And Exchange Board Of India – SEBI Mean?

The regulatory body for the investment market in India. The purpose of this board is to maintain
stable and efficient markets by creating and enforcing regulations in the market place.

SEBI The Securities And Exchange Board of India is similar to the U.S. SEC. The SEBI is
relatively new (1992) but is a vital component in improving the quality of the financial markets
in India, both by attracting foreign investors and protecting Indian Investors.

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 HISTORY

The idea of setting up a regulator was first proposed by former Prime Minister, Late Mr. Rajiv
Gandhi who was also the Finance Minister in 1987. In his budget speech for 1987-88, Mr.
Gandhi had said “For a healthy growth of capital markets, investors’ rights must be fully
protected. Trading malpractices must be prevented. Government has decided to set up a
separate board for the regulation and orderly functioning of stock exchanges and the securities
industry.” Thus, a notification was issued and SEBI was constituted on 12th April 1988 as an
interim administrative body under the Finance Ministry. However, it was four years later; on
4th April 1992 that a notification awarding statutory powers to SEBI was finally issue.

SEBI is a quasi-legislative, quasi-judicial and quasi-executive body. It can draft regulations,

conduct inquiries, pass rulings and impose penalties. All decisions taken by SEBI are
collectively taken by its Board that consists of a Chairman and eight other members. The
current Chairman of SEBI is Ajay Tyagi who was appointed on 10th January 2017, replacing
U. K. Sinha, and took charge of the Chairman Office on 1st March 2017. Moreover, SEBI
appoints various committees, whenever required to look into the pressing issues of that time.
Further, a Securities Appellate Tribunal – SAT has been constituted to protect the interest of
entities that feel aggrieved by any of SEBI’s decision. SAT, consisting of a Presiding Officer
and two other Members, has the same powers as vested in a civil court. Further, if any person
feels aggrieved by SAT’s decision or order can appeal to the Supreme Court.

It was officially established by The Government Of India in the year 1988 and given statutory
powers in 1992 with SEBI Act 1992 being passed by the Indian Parliament. SEBI has its
Headquarters at the business district of Bandra Kurla Complex in Mumbai, and has Northern,
Eastern, Southern and Western Regional Offices in New Delhi, Kolkata, Chennai and
Ahmedabad respectively. Controller of Capital Issues was the regulatory authority before SEBI
came into existence; it derived authority from the Capital Issues (Control) Act, 1947.

Initially, SEBI was a non-statutory body without any statutory power. However in the year of
1995, the SEBI was given additional statutory power by the Government of India through an
amendment to the Securities and Exchange Board of India Act 1992. In April, 1988 the SEBI
was constituted as the regulator of capital market in India under a resolution of the Government
of India.

The SEBI is managed by its members, which consists of following:

a) The chairman who is nominated by Union Government of India.

b) Two members i.e. Officers from Union Finance Ministry.

c) One member from The Reserve Bank Of India.

d) The remaining 5 members are nominated by Union Government Of India; out of them at
least 3 shall be whole-time members.

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The office of SEBI is situated at SEBI Bhavan, Bandra Kurla Complex, Bandra East, Mumbai-
400051, with its regional offices at Kolkata, New Delhi & Chennai. It has recently opened local
offices at Jaipur, Bangalore, Chandigarh, Lucknow, Hyderabad, Dehradun, Kochi, Shimla,
Guwahati, Jaipur, Bhubaneshwar, Indore, Patna, Panaji, Ranchi and Raipur.

ESTABLISHMENT OF THE SECURITIES AND EXCHANGE BOARD OF INDIA

 Establishment And Incorporation Of Board:-

 With effect from such date as the Central Government may, by notification appoint, there
shall be established for the purposes of this Act, a Board by the name of the Securities
And Exchange Board Of India.
 The Board shall be a body corporate b the name aforesaid, having perpetual succession
and a common seal, with power subject to provision of his 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.

 The head office of the Board shall be at Bombay.

 The Board may establish offices at other places in India.

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 Management Of The Board:-
 The Board shall consist of the following members, namely:-
 A Chairman;
 Two members from amongst the officials of the [Ministry] of the Central Government
dealing with Finance [and administration of the Companies Act, 1956(1 of 1956)];
 One member from amongst the officials of [the Reserve Bank];
 Five other members of whom [at least three shall be the whole-time members] to be
appointed by The Central Government.

 The general superintendence, direction and management of the affairs of the Board shall
vest in a Board of members, which may exercise all powers and do all acts and things
which may exercise all powers and do all acts and things which may be exercised or done
by the Board.

 Save as otherwise determined by regulations, the Chairman shall also have powers of
general superintendence and direction of the affairs of the Board and may also exercise
all powers and do all acts and things which may be exercised or done by that Board.

 The Chairman and members referred to in clauses (a) and (b) of sub-section (1) shall be
appointed by the Central Government and the members referred to in clauses (b) and (c)
of that sub-section shall be nominated by the Central Government and the [Reserve Bank]
respectively.

 The Chairman and the other members referred to in clauses (a) and (d) of sub-section (1)
shall be persons of ability, integrity and standing who have shown capacity in dealing
with problems relating to securities market or have special knowledge or experience of
law, finance, economics, accountancy, administration or in any other discipline which, in
the opinion of the Central Government, shall be useful to the Board.

 Term Of Office And Conditions Of Service Of Chairman And Members Of The

Board:-

The term of office and other conditions of service of the Chairman and the members
referred to in clause (d) of sub-section (1) of section 4 shall be such as may be prescribed.

 Notwithstanding anything contained in sub-section (1), the Central Government shall

have the right to terminate the services of the Chairman or a member appointed under
clause (d) of section (1) of section 4, at any time before the expiry of the period prescribed
under sub-section (1), by giving him notice of not less than three months in writing or
three months’ salary and allowances in lieu thereof, and the Chairman or a member, as
the case may be, shall also have the right to relinquish his office, at any time before the
expiry of the period prescribed under sub-section (1), by giving to the Central Government
notice of not less than three months in writing.

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 Removal Of Member From Office:-

The Central Government shall remove a member from office if he –

 is, or at any time has been, adjudicated as insolvent;
 is of unsound mind and stands so declared by a competent court;
 has been convicted of an offence which, in the opinion of the Central Government,
involves a moral turpitude;
 has, in the opinion of the Central Government, so abused his position as to render his
continuation in office detrimental to the public interest:
Provided that no member shall be removed under this clause unless he has been a
reasonable opportunity of being heard in the matter.

 Meetings:-

 The Board shall meet at such times and places, and shall observe such rules of procedure
in regard to the transaction of business at its meetings (including quorum at such
meetings) as may be provided by regulations.
 The Chairman or, if for any reason, he is unable to attend a meeting of the Board, any
other member chosen by the members present from amongst themselves at the meeting
preside at the meeting.
 All questions which come up before any meeting of the Board shall be decided by a
majority votes of the members present and voting, and, in the event of an equality of votes,
the Chairman, or in his absence, the person presiding, shall have a second or casting vote.

 Member Not To Participate In Meetings In Certain Cases:-

Any member, who is a director of a company and who as such director has any direct or
indirect pecuniary interest in any matter coming up for consideration at a meeting of the Board,
shall, as soon as possible after relevant circumstances have come to his knowledge, disclose
the nature of his interest at such meetings and such disclosure shall be recorded in the
proceedings of the Board, and the member shall not take any part in any deliberation or decision
of the Board with respect to that matter.”

 Vacancies etc.. Not To Invalidate Proceedings Of Boards:-

No act or proceedings of the Board shall be invalid merely by reason of-
 Any vacancy in, or any defect in the Constitution of, the Board; or
 Any defect in the appointment of a person acting as a member of the Board; or
 Any irregularity in the procedure of the Board not affecting the merits of the case

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 Officers and employees of the Board:-

 The Board may appoint such other officers and employees as it considers necessary for
the efficient discharge of its function under this Act.
 The term and other conditions of service of officers and employees of the Board appointed
under sub-section (1) shall be such of officers and employees of the Board appointed
under sub-section (1) shall b such as may be determined by regulations.

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 MISSION OF SEBI
Securities And Exchange Board Of India (SEBI) formed under the SEBI Act, 1992 with the
prime objective of :-
 Protecting the interest of investors in securities,
 Promoting the development of, and
 Regulating, the securities market and for matters connected therewith or incidental
thereto.’
Focus being the greater investor protection, SEBI has become a vigilant watchdog

PREAMBLE
The Preamble of the Securities And Exchange Board of India describes the basic functions of
the SEBI as `…to protect the interests of investors in securities and to promote the development
of, and to regulate the securities market and for matters connected therewith or incidental
thereto”

OBJECTIVE OF SEBI

In 1988, the Securities And Exchange Board Of India (SEBI) was established by the
Government of India through an executive resolution, and was subsequently upgraded as a
fully autonomous body (a statutory Board) in the year 1992 with the passing of the Securities
And Exchange Board Of India Act (SEBI Act) on the 30th January 1992. In place of
Government Control, a statutory and autonomous regulatory board with defined
responsibilities , to cover both development & regulations of the market, and market, and
independent powers has been setup. Paradoxically this a positive outcome of the Securities
Scam of 1990-91
The basic objectives of the Board were identified as:

 To protect the interests of investors in securities;

 To promote the development of Securities Market;
 To regulate the Securities market and
 For matters connected therewith or incidental there to.
Since its inception SEBI has been working targeting the securities and its attending to the
fulfilment of its objectives with commendable zeal and dexterity. The improvements in the
securities markets like capitalization requirements, margining, establishment of clearing
corporations etc. reduced the risk of credit and also reduced the market.

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SEBI has introduced the comprehensive regulatory measures, prescribed registration norms,
the eligibility criteria, the code of obligations and the code of conduct for different
intermediaries like, bankers to issues, merchant bankers, brokers and sub-brokers, registrars,
portfolio managers, credit rating agencies, underwriters and others. It has framed by-laws, risk
identification and risk management systems for Clearing houses of stock exchanges,
surveillance system etc. which has made dealing in securities both safe and transparent to the
end investor.

Another significant event is the approval of trading in stock indices (like S&P CNX Nifty &
Sensex) in 2000. A market Index is a convenient and effective product because of the following
Reasons:
 It acts as a barometer for market behaviour;
 It is used to benchmark portfolio performance;
 It is used in derivative instruments like index futures and index options;
 It can be used for passive fund management as in case of Index Funds
Two broad approaches of SEBI is to integrate the securities market at the national level, and
also to diversify the trading products, so that there is an increase in number of traders including
banks, financial institutions, insurance companies, mutual funds, primary dealers etc. to
transact through the Exchanges. In this context the introduction of derivatives trading through
Indian Stock Exchanges permitted by SEBI in 2000 AD is a real landmark.
SEBI appointed the L. C. Gupta Committee in 1998 to recommend the regulatory framework
for derivatives trading and suggest by-laws for Regulations and Control of Trading and
Settlement of Derivatives Contracts. The Board of SEBI in its meeting held on May 11, 1998
accepted the recommendations of the committee and approved the phased introduction of
derivatives trading in India beginning with Stock Index Futures. The Board also approved the
“Suggestive By-laws” as recommended by the Dr. L.C Gupta Committee for Regulations and
Control of Trading and Settlement of Derivatives Contracts. SEBI then appointed the J. R.
Verma Committee to recommend Risk Containment Measures (RCM) in the Indian Stock
Index Futures Market. The report for the same was submitted in November 1998.
However the Securities Contracts (Regulation) Act, 1956 (SCRA) required amendment to
include “derivatives” in the definition of securities to enable SEBI to introduce trading in
derivatives. The necessary amendment was then carried out by the Government in 1999 the
new framework was approved.
Derivatives have been accorded the status of `Securities’. The ban imposed on trading in
derivatives in 1969 under a notification issued by the Central Government was revoked.
Thereafter SEBI formulated the necessary regulations/by-laws and intimated the Stock
Exchanges in the year 2000. The derivative trading started in India at NSE in 2000 and BSE
started trading in the year 2001.

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 POWERS AND FUNCTIONS OF SEBI

Regulatory Function

Functions of SEBI Developmental Function

Protective Function

 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:-

 SEBI has framed rules and regulations and a code of conduct to regulate the
intermediaries such as merchant bankers, brokers, underwriters, etc
 These intermediaries have been brought under the regulatory purview and private
placement has been made more restrictive.
 SEBI registers 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.
 Registration and Regulation of the Working of Intermediaries and Mutual Funds,
Venture Capital Funds and Collective Investment Schemes.
 Prohibiting fraudulent and unfair trade practices and insider trading in the securities
market.
 Investor education and the training of intermediaries.
 Inspection and inquiries.
 Regulating substantial acquisition of shares and take-over.
 Performing such functions and exercising such powers under the provision of the
 Securities Contracts (Regulation) Act, 1956 as may be delegated to it by The Central
Government;
 Levying fees or other charges for carrying out the purposes of this section.
 Promotes activities of stock exchange by adopting flexible and adoptable approach in
following ways:-
i. SEBI has permitted internet trading through registered stock brokers.
ii. SEBI has made underwriting optional to reduce the cost of issue.
iii. Even initial public offer of primary market is permitted through stock exchange.

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 DEVELOPMENTAL FUNCTIONS:-

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

 SEBI promotes training of intermediaries of the securities market.

 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.

 PROTECTIVE FUNCTION:-

These functions are performed by SEBI to protect the interest of investor and provide safety
of investment.
As protective functions SEBI performs following functions:-

 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.

 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 price of the securities. This
information is not available to people at large but the insiders get this privileged
information by working inside the company and if they use this information to make
profit, then it is known as insider trading, e.g., the directors of a company may know
that company will issue Bonus shares to its shareholders at the end of year and they
purchase shares from market to make profit with bonus issue. This is known as Insider
Trading. SEBI keeps a strict check when insiders are buying securities of the company
and takes strict action on 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.

 SEBI undertakes steps to educate investors so that they are able to evaluate the
securities of various companies and select the most profitable securities.

 SEBI promotes fair practices and code of conduct in security market by taking
following steps:-

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 i. SEBI has issued guidelines to protect the interest of debenture-holders wherein
companies cannot change terms in midterm.
ii. SEBI is empowered to investigate cases of insider trading and has provisions for stiff
fine and imprisonment.
iii. SEBI has stopped the practice of making preferential allotment of shares unrelated to
market price.

POWERS OF SEBI

 Powers relating to stock exchanges & intermediaries

SEBI has wide powers regarding the stock exchanges and intermediaries dealing in
securities. It can ask information from the stock exchanges and intermediaries regarding
their business transactions for inspection or scrutiny and other purpose.

 Power to impose monetary penalties

SEBI has been empowered to impose monetary penalties on capital market
intermediaries and other participants for a range of violations. It can even impose
suspension of their registration for a short period.

 Power to initiate actions in functions assigned

SEBI has a power to initiate actions in regard to functions assigned. For example, it can
issue guidelines to different intermediaries or can introduce specific rules for the
protection of interests of investors.

 Power to regulate insider trading

SEBI has power to regulate insider trading or can regulate the functions of merchant
bankers.

 Powers under Securities Contracts Act

For effective regulation of stock exchange, the Ministry of Finance issued a Notification
on 13 September, 1994 delegating several of its powers under the Securities Contracts
(Regulations) Act to SEBI.
SEBI is also empowered by the Finance Ministry to nominate three members on the
Governing Body of every stock exchange.

 Powers to regulate business of stock exchanges

SEBI is also empowered to regulate the business of stock exchanges, intermediaries
associated with the securities market as well as mutual funds, fraudulent and unfair
trade practices relating to securities and regulation of acquisition of shares and
takeovers of companies.

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 DEPARTMENTS OF SEBI AND ITS FUNCTIONS

 MARKET INTERMEDIARIES REGULATIONS AND SUPERVISION

DEPARTMENT (MIRSD):-
The Market Intermediaries Regulations And Supervision Department is responsible for
the registration, supervision, compliance monitoring and inspections of all markets in
respect of all segments of the markets viz. equity, equity derivatives, debt and debt
related derivatives. The Department also handles the work related to action against the
intermediaries for regulatory violations (As regards action it is clarified that the current
practice of issuing show cause notices, appointment of Enquiry/Adjudication officers
and consequential action up to serving of Chairman’s order and maintenance of
database will be with the respective Divisions). The following divisions will perform
the functions of the department.
 MIRSD-1 (A-M)
This division would look after work relating to registration, monitoring, supervision,
inspection, investor grievances and policy related issues of Stock Brokers and Fees related
matters including co-ordination of summary proceedings.

 MIRSD-2 (N-Z)
The division would look after the work relating to Registration, monitoring, supervision,
inspection, investor grievances and policy related issues of Stock Brokers and Sub-Brokers.

 MIRSD-3
The division would look after the work relating to Registration, monitoring, supervision,
inspection, investor grievances and policy related issues of the following Primary Market
related intermediaries:
 Merchant Bankers
 Registrars to Issue
 Bankers to Issue
 Underwriters

 MIRSD-4
The division would look after the work relating to Registration, monitoring, supervision,
inspection, investor grievances and policy related issues of the following intermediaries:
 Debenture Trustees
 Credit Rating Agencies
 Depository Participants

 MIRSD-5
This division looks into the matters relating to the following intermediaries:
 Sub-brokers
 Debenture Trustees
 Bankers to Issue

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 MARKET REGULATION DEPARTMENT (MRD):-
The Market Regulation Department is responsible for supervising the functioning and
operations (except relating to derivatives) of securities exchanges, their subsidiaries, and
market institutions such as Clearing and settlement organizations and Depositories.
(‘hereinafter collectively referred to as ‘Market SROs) The following Divisions will
perform the functions of the Department:

 Division of Policy
The Division will handle the work related to policy and practice relating to Market SROs
i.e., securities exchanges, clearing and settlement organizations and depositories; market
policy, trading, clearance, settlement issues, risk management, and related areas;
Reviewing rules and rule-change proposals of these Market SROs relating to market policy
issues, (except for listing matters standards in purview of Corporation Finance
Department); Procedures for suspending trading of securities.

 Division of SRO Administration

The division will handle the work related to Registration and recognition of the Market
SROs; administration of these Market SROs; Demutualization or Corporatization of
exchanges; reviewing rule change proposals relating to non-market policy issues;
supervision of the Market SROs to the extent of compliance with regulatory provisions
through periodical reports and regulatory action. (As regards action it is clarified that the
current practice of issuing show cause notices, appointment of Enquiry/Adjudication
officers and consequential action up to serving of Chairman’s order and maintenance of
database will be with the Division)

 Division of Market Supervision

The Division will hand the work related to conducting compliance, examinations and
inspections of Market SROs

 Investors Complaints Cell

The cell would receive complaints relating to the Market SROs from the Office of Investor
Assistance and Education (OIAE) and take follow up action and report back to the OIAE.
If regulatory action is required, the Cell shall inform the Division of SRO Administration
besides reporting to OIAE.

 DERIVATIES AND NEW PRODUCTS DEPARTENTS (DNPD):-

 Division of Policy and Supervision

The Division is responsible for supervising the functioning and operations of derivatives
exchanges and related market organization. In order to accomplish its tasks, this division
would be responsible for the following:-
 Derivatives market policy issues.
 Approval of new derivative products

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  Monitoring the functioning of derivatives exchanges including conducting inspections
and compliance exams.
 Prescribing and Monitoring risk management and settlement practices in derivatives
exchanges
 Developing the trading and settlement framework for new products.
 Regulatory action were required. As regards action it is clarified that the current practice
of issuing show cause notices, appointment of
 Enquiry/Adjudication officers and consequential action up to serving of Chairman’s
order and maintenance of database will be with the division.

 Investors Complaint Cell

The cell would receive complaints relating to the derivatives exchanges and related
organizations from the Office of Investor Assistance and Education (OIAE) and take follow
up action and report back to the OIAE. If regulatory action is required, the Cell shall inform
the Division of Policy and supervision besides reporting to OIAE.

 CORPORATION FINANCE DEPARTMENT (CFD):-

The Corporation Finance Department deals with matters relating to

i. Issuance and listing of securities, including initial and continuous listing requirements
ii. Corporate governance and accounting/auditing standards
iii. Corporate restructuring through Takeovers/buybacks
iv. Delisting etc.
The following division form part of this Corporation Finance Department:-
 Division of Issues and Listing (DIL)
 Policy pertaining to (i) primary market (ii) disclosures (initial as well as continuous) (iii)
listing (iv) corporate governance (v) Employee Stock Option (vi) Preferential issues (vii)
Qualified Institutional Placement (QIP) (viii) common electronic filing platforms viz.
EDIFAR & CFDs (ix) listing conditions and (x) vanishing companies in consultation with
Ministry of Corporate Affairs (MCA) through the framework of Coordination And
Monitoring Committee (CMC), set up by the Government of India.
 Issue of observations on the draft offer documents of public and right issues.
 Operational matters pertaining to accounting standards, compliance with corporate
governance, guidance to Stock Exchanges on listing matters, vanishing companies in
consultation with respective Registrar of Companies, allegations of non-compliance with
listing agreement etc.
 The following Committees of SEBI:-
 Primary Market Advisory Committee (PMAC)- to advise SEBI on policy issues
pertaining to Primary Market.
 SEBI Committee of Disclosures and Accounting (SCODA)- to advise SEBI on
disclosures and accounting related issues.
 Regulatory action were required (As regards action it is clarified that the current practice
of issuing show cause notices, appointment of Enquiry/Adjudication officers and

21
 consequential action up to serving of Chairman’s order and maintenance of database will
be with the Division).”

 Division of Corporate Restructuring

The Division will handle the work relating to:-
 Policy related to corporate restructuring
 Substantial Acquisition and Takeovers
 Buy back of Securities
 Delisting of Securities
 Co-ordinating with the Takeover Panel
 Regulatory action where required. (As regards action it is clarified that the current practice
of issuing show cause notices, appointment of Enquiry/Adjudication officers and
consequential action up to serving of Chairman’s order and maintenance of database will
be with the division).
 Investor complaints relating to corporate restructuring.

 INVESTMENT MANAGEMENT DEPARTMENT (IMD):-

The Investment Management department is responsible for registering and regulating
mutual funds, venture capital funds, foreign venture capital investors, collective investment
schemes, including plantation schemes, Foreign Institutional Investors, Portfolio Managers
and Custodians. The following Divisions will perform the functions of Department;

 Division of Funds [1. (Portfolio Managers, Venture Capital, Corporate Bonds, etc)
2. (Mutual Funds) 3. (Inspection of Mutual Funds)]:
The Divisions handle the following works related to their respective entities:
 Registrations
 Policy related issues
 Inspections
 Investor Complaints
 Regulatory actions.
Investor Complaints Cell: The cell would receive complaints relating to their respective entities
from the OIAE and take follow up action and report back to OIAE. If regulatory action is
required, the Cell shall keep the OIAE informed.

 Division of Foreign Institutional Investors and Custodian:

The Division administers the SEBI (Collective Investment Schemes) Regulations 1999. It
includes work relating to the following:
 Existing CIS entities
 Investigating complaints of purported CIS entities
 Grant of provisional registration to existing CIS entities in terms of regulation 73 of
the Regulation Act

22
  Taking action against the entities for non-compliance with the regulations like,
prohibitors orders and launching prosecution against errant entities and their
promoters/directors and key management personnel.
 Providing evidences in courts pertaining to prosecution proceedings.
 Registration of Collective Investment Management Companies-CIMC
The above activities are also conducted at the regional offices of SEBI, wherever the address
of the CIS entity is located.
Investor Complaint Cell : The cell shall address the complaints of investors relating to CIS or
alleged CIS entities from the OIAE. The division shall take action and report back to OIAE
about the same. The Regional Offices of SEBI report the status of complaints to Head Office
Division of CIS. In case of regulatory actions, the OIAE shall be informed about the same.

 INTEGRATED SURVEILLANCE DEPARTMENT (ISD):-

The Integrated Surveillance Department is responsible for monitoring market activities
through market systems, data from other departments and analytical software. The
department would be responsible for;

 Developing, maintaining and operating an integrated market surveillance system including

monitoring of all segments of the markets.

 Methodologies for capturing information from media review, public complaints and tips,
other agencies, exchanges, and direct solicitations; assignment of staff to handle functions;
method of logging and cataloguing information; criteria for evaluating and distributing
information; input into tracking and other systems.

 Recognizing potentially illegally activities and referrals to Investigations, Enforcement or

other Departments.

 INVESTIGATION DEPARTMENT (IVD):-

The Investigation Department is responsible for:
 Conducting investigations on potentially illegal market activities.
 Providing referrals to the enforcement department.
 Assisting the enforcement department in enforcing SEBI action against violators.
 (As regards action, the current practice of issuing show case notices, appointment of
Enquiry/Adjudication officers and consequential action up to serving of Chairman’s
order and maintenance of database will be with the Department).

 ENFORCEMENT OF DEPARTMENT (EFD):-

Enforcement Department is responsible for proceedings related to regulatory action and
obtaining redress for violations of securities laws and regulations against all market

23
 participants, issuers and individuals and other entities that breach securities laws and
regulations. The following Divisions will perform the functions of the Department;

 Divisions of Regulatory Action

The Division shall enforce action against market misdemeanours through SEBI
administrative proceedings. The role of the Division shall commence from the time
hearing before Chairman/Board is proposed. The Division will assist the
Chairman/Board in its proceeding, prepare the orders, handle all matters relating to SAT,
appeals against SAT orders and Court cases relating to regulatory action. The Division
will also frame the procedures relating to the above matters.

 Division of Prosecutions
The Division shall handle work related to filing prosecution proceedings through the
courts and follow up to obtain conviction. The Division will also frame procedures for
co-operation with public prosecutors, other agencies and for making referrals to
prosecutors and other government agencies.

 LEGAL AFFAIRS DEPARTMENT (LAD):-

The Department of Legal Affairs would be responsible to provide legal counsel to the
Board and to its other departments, and to handle non-enforcement litigation. The
following Divisions will handle the functions of the Department:

 Division of Policy
The division would work to formulate SEBI’s legislative initiatives and review and
comment upon proposed legislation that would affect the securities industry or SEBI’s
authority or operation. It would handle testimony and statutory drafting assistance. The
division would also be responsible for establishing a clear legal framework and basis for
the various categories of SEBI pronouncements (e.g., regulations, guidelines, circulars,
instructions, etc.,); the hierarchy of their force and effect; the procedure for their
promulgation, amendment or repeal.

 Division of Regulatory Assistance

The division would support other SEBI departments in meeting their objectives by
providing assistance and guidance wherever necessary in developing market rules and
interpretations.

 ENQUIRES AND ADJUDICATION DEPARTMENT (EAD):-

The Enquiries and Adjudication Department would handle quasi-judicial matters and
provide timely hearings and initiate adjudication brought by the other Departments
against alleged violators who are within SEBI’s disciplinary jurisdiction. The
department would directly report to Chairman.

24
  Office of investor assistance and education (OIAE):-
The Office will support SEBI’s operations by handling investor complaints centrally and
be the focal point of SEBI’s investor education effort. The Office would be the single
point interface with investors and would receive complaints relating to all departments,
forward to the concerned departments, follow up and respond to investors. The office
shall set up necessary systems and procedures to handle his function.
The Office will also receive complaints relating to issues, transfer of shares, dividends,
compliance with listing conditions, corporate governance issues under the purview of
the Corporation Finance Department (Division of Issues and Listing) and take follow up
action.

 GENERAL SERVICES DEPARTMENT (GSD):-

This department would support all of the internal operations of SEBI. The Department will
have the following divisions:-

 Treasury and Accounts Division

This division will handle work related to:
 Development of SEBI’s internal budget and accounting systems
 Presentation of reports and budgets to the SEBI Board
 Maintaining internal accounting records, developing internal control systems for
collections and disbursements and other financial controls
 Managing SEBI’s investments

 Facilities Management Division

The Division will be responsible for the establishment and maintenance of the physical
facility housing the regulator and related needs.

 Official Language Division

The Division will handle the work related to compliance with Government’s official
language policy and translation of certain documents into the official language.

 Office of the Secretary to the Board

The Office of the Secretary shall co-ordinate Board meetings, record and maintain Board
decisions.

 Protocol and Security Division

The division will handle work related to:
 Protocol duties for visits/ meetings of senior officials of SEBI and co-ordinating
visits of dignitaries to SEBI,
 Security and Fire fighting duties in the office and residential premises of SEBI,
 Functioning of mailing desk and reception,
 General upkeep of the office premises and maintenance of SEBI buildings,
 Verification of dead stock inventory for SEBI’s offices and residential premises.

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 DEPARTMENT OF ECONOMIC AND POLICY ANALYSIS (DEPA):-
The Department will handle its functions through the following Divisions:

 Division of policy analysis (DPA)

This division will look after the following:
 Partnering/Vetting of policy/concept papers.
 Need based research
 Regulatory Impact Assessment (RIA) and benchmarking of regulations.
 Research Support to Committees and Working Groups set up by SEBI.
 Development of Strategic Action plan/Vision Statement.
 Any other tasks that may be assigned.

 Division of Economic Analysis (DEA)

This division would look after the following:
 Tracking and analysis of market developments
 Tracking and analysis of other economic developments
 Repository of data (and data analysis)
 Preparation and publication of Annual Report
 Preparation and publication of SEBI Bulletin and Handbook of Statistics
 Conducting periodic Investor Survey
 History of Securities Market Project
 Any other tasks that may be assigned

 OFFICE OF THE CHAIRMAN (OCH):-

 Office of the Executive Assistant to Chairman
The office will be responsible to provide such administrative and other support as the
Chairman may require. The functions would include strategic planning and managing
new initiatives.

 Office of International Affairs

The office would perform the following:
 Implement information-sharing initiatives with international regulators
 Participate in international regulatory organizations
 Handle all matters related to Foreign assisted projects
 Establish guidelines for interaction with foreign Government agencies and foreign
jurisdictions, including providing technical assistance.

 Communication Division
The division would be responsible for all communications of SEBI. These include:
 Media releases and other forms of communication including the publication of
SEBI materials.
 News conferences and responding to inquiries from the press

26
  Human Resource Division
The Human Resources Division will perform all the functions in its role as the principal
personnel and human resources authority in SEBI.

 INFORMATION TECHNOLOGY DEPARTMENT:-

This department would perform its role as the technical support group for SEBI.

 THE REGIONAL OFFICES (RO’s):-

The Regional Office will handle work as per existing delegation and shall continue to report
to functional heads for specific departmental functions while reporting administratively to
SEBI Executive Directors.

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 CAPITAL MARKET

A capital market is a financial market in which long-term debt (over a year) or equity-backed
securities are bought and sold. Capital markets channel the wealth of savers to those who can
put it to long-term productive use, such as companies or governments making long-term
investments. A capital market can be either a primary market or a secondary market. In primary
market, new stock or bond issues are sold to investors, often via a mechanism known as
underwriting. The main entities seeking to raise long-term funds on the primary capital markets
are governments (which may be municipal, local or national) and business enterprises
(companies). Governments issue only bonds, whereas companies often issue both equity and
bonds. The main entities purchasing the bonds or stock include pension funds, hedge funds,
sovereign wealth funds, and less commonly wealthy individuals and investment banks trading
on their own behalf. In the secondary market, existing securities are sold and bought among
investors or traders, usually on an exchange, over-the-counter, or elsewhere. The existence of
secondary markets increases the willingness of investors in primary markets, as they know they
are likely to be able to swiftly cash out their investments if the need arises.

28
The history of the capital market in India dates back to the 18th century when East India
Company securities were traded in the country. It has been a long journey for the Indian Capital
Market. Now the Capital Market is organised, fairly integrated, mature, more global and
modernized. The Indian Equity Market is one of the best in the world in terms of technology
as well as value-cum-volume of business. On 31st August, 2010 our Indian equity stocks total
market capitalization value was around Rs. 70,00,000 crores.

CAPITAL MARKET IN INDIA

After the securities are issued in the primary market, they are traded in the secondary market,
by the investors. The stock exchanges along with a host of other intermediaries provide the
necessary platform for trading in secondary market and also for clearing and settlement. The
securities are traded, cleared and settled within the regulatory framework prescribed by the
Exchanges and the SEBI. Till recent, it was mandatory for the companies to list their securities
on the regional stock exchange nearest to their registered office, in order to provide an
opportunity to investors to invest/trade in the securities of local companies. However,
following the withdrawal of this restriction, the companies have an option to choose from any
one of the following stock exchanges in India to list their securities. Due to the earlier
regulation requiring companies are to get listed first at the regional stock exchange, there are
in all 23 exchanges operating today in the country. With the increased application of
information technology, the trading platforms of all stock exchanges are accessible from
anywhere in the country through their trading terminals.
However, the trading platforms of NSE is also accessible through internet and mobile devices.
In a geographically widespread country like India, this has significantly expanded the reach of
the exchanges to the homes of ordinary investors and assuages the aspirations of people to have
exchanges in their vicinity. As a result of the reforms/initiatives taken by the Government and
the Regulators, the markets microstructure has been redefined and modernized. The investment
choices for the investors have also broadened.
The securities market moved from T+3 settlement periods to T+2 rolling settlement with effect
from April 1, 2003. Further, straight through processing has been made mandatory for all
institutional trades executed on the stock exchange. RBI to settle inter-bank transactions online
at real time mode has also introduced real time gross settlement. These developments in the
securities market provide the necessary impetus for growth and development, and hereby
strengthen the emerging market economy in India.

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30
 ROLE OF SEBI IN INDIAN CAPITAL MARKET

SEBI is regulator to control Indian Capital Market. Since its establishment in 1992, it is doing
hard work for protecting the interests of Indian investors. SEBI gets education from past
cheating with naïve investors of India. Now, SEBI is more strict with those who commit frauds
in capital market. The role of security exchange board of India (SEBI) in regulating Indian
Capital Market is very important because government of India can only open or take decision
to open new stock exchange in India after getting advice from SEBI. If SEBI thinks that it will
be against its rules and regulations, SEBI can ban on any Stock Exchange to trade in shares
and stocks. Now, we explain role of SEBI in regulating Indian Capital Market more deeply
with following points;

 POWER TO MAKE RULES FOR CONTROLLING STOCK EXCHANGES :-

SEBI has power to make new rules for controlling stock exchanges in India. For example,
SEBI fixed the time of trading 9 AM and 5 PM in stock market.

 TO PROVIDE LICENSE TO DEALERS AND BROKERS :-

SEBI has power to provide license to dealers and brokers of capital market. If SEBI sees
that any financial product is of capital nature, then SEBI can also control to that product
and its dealers. One of main example is ULIP’s case. SEBI said, “It is just like funds and
all banks and financial and insurance companies who want to issue it, must take permission
from SEBI.’

 TO STOP FRAUD IN CAPITAL MARKET :-

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 stock market.
 It can impose the penalties on capital market intermediaries if they involve in insider
trading.

 TO CONTROL THE MERGE, ACQUISITION AND TAKEOVER OF THE

COMPANIES :-
Many big companies in India want to create monopoly in capital market. So, these
companies buy all other companies or deals of merging. SEBI sees whether this merge or
acquisition if for development of business or to harm capital market.

 TO AUDIT THE PERFORMANCE OF STOCK MARKET :-

SEBI uses his powers to audit the performance of different Indian Stock Exchange for
bringing transparency in the working of Stock Exchanges.

 TO MAKE NEW RULES ON CARRY-FORWARD TRANSACTIONS :-

 Share trading transactions carry forward can not exceed 25% of broker’s total
transactions.
 90 days limit for carry forward.

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 TO CREATE RELATIONSHIP WITH ICAI :-
ICAI is the authority for making new auditors of companies. SEBI creates good relationship
with ICAI for bringing more transparency in the auditing work of company accounts
because audited financial statements are mirror to see the real face of company and after
this investors can decide to invest or not to invest. Moreover, investors of India can easily
trust on audited financial reports. After, Satyam Scam. SEBI is investigating with ICAI,
whether CA’s are doing their duty by ethical way or not.

 INTRODUCTION OF DERIVATIVE CONTRACTS ON VOLATILITY INDEX:-

 For reducing the risk of investors, SEBI has now been decided to permit Stock
Exchanges to introduce derivative contracts on Volatility Index, subject to the condition
that;
 The underlying Volatility Index has a track record of at least one year.
 The Exchange has in place the appropriate risk management framework for such
derivative contracts.

 Before introduction of such contracts, The Stock Exchanges shall submit the following:
 Contract specifications
 Position and Exercise Limits
 Margins
 The economic purpose is intended to serve
 Likely contribution to market development
 The safeguards and the risk protection mechanism adopted by the exchange to ensure
market integrity, protection of investors and smooth and orderly trading.
 The infrastructure of the exchange and the surveillance system to effectively monitor
trading in such contracts, and
 Details of settlement procedures and systems
 Details of back testing of the margin calculation for a period of one year considering
a call and a put option on the underlying with a delta of 0.25 & -0.25 respectively and
actual value of the underlying.

 TO REQUIRE REPORT OF PORTFOLIO MANAGEMENT ACTIVITIES:-

SEBI has also power to require report of portfolio management to check the capital market
performance. Recently, SEBI sent the letter to all Registered Portfolio Managers of India
for demanding report.

 TO EDUCATE THE INVESTORS:-

Time to time, SEBI arranges scheduled workshops to educate the investors. On 22nd May,
2010 SEBI imposed workshop.

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PRIMARY MARKET

33
The Primary Market is the part of the capital market that deals with the issuance of new
securities and then sold to investor directly by the issuer. Investor buy securities that were never
traded before. Primary markets create long term instruments through which corporate entities
raise funds from the capital market. It is also known as the New Issue Market (NIM). In a
primary market, companies, governments or public sector institutions can raise funds through
bond issues and corporations can raise capital through the sale of new stock through an Initial
Public Offering (IPO). This is often done through an investment bank or finance syndicate of
securities dealers. The process of selling new shares to investors is called underwriting. Dealers
earn a commission that is built into the price of the security offering, though it can be found in
the prospectus.
Instead of going through underwriters, corporations can make a primary issue or right issue
of its debt or stock, which involves the issue by a corporation of its own debt or new stock
directly to institutional investors or the public or it can seek additional capital from existing
shareholders.
Since the securities are issued directly by the company to its investors, the company receives
the money and issues new security certificates to the investors. The primary market play the
crucial function of facilitating the capital formation within the economy. The securities issued
at the primary market can be issued in face value, premium value, and at par value.
Once issued, the securities typically trade on a secondary market such as a stock exchange,
bond market or derivatives exchange.
Primary Market provide opportunity to issuers of securities, Government as well as corporate,
to raise resources to meet their requirements of investment and/or discharge some obligation.
The issuers create and issue fresh securities in exchange of funds through public issues and/or
as private placement. They may issues the securities at face value, or at a discount/premium
and these securities may take a variety of forms such as equity, debt or some hybrid instrument.
They may issue the securities in domestic market and/or international market
troughed/GDR/ECB route.

RAISING FUNDS
Corporate entities raise funds from the primary market in three ways:

1. Public Issue
2. Rights Issue
3. Preferential Allotment

 PUBLIC ISSUE:-
A public offering is the offering of securities of a company or a similar corporation to the
public. Generally, the securities are to be listed on a stock exchange. In most jurisdictions,
a public offering requires the issuing company to publish a prospectus detailing the terms
and rights attached to the offered security, as well as information on the company itself
and its finances. Many other regulatory requirements surround any public offering and
34
 they vary according to jurisdiction. Initial Public Offering (IPO) is one type of public
offering. Not all public offerings are IPOs. An IPO occurs only when a company offers its
shares for the first time for public ownership and trading, an act making it a public
company. However, public offerings are also made by already-listed companies. The
company issues additional securities to the public, adding to those currently being traded.

Other types of securities, besides shares, can be offered publicly. Bonds, warrants, capital
notes and many other kinds of debt and equity vehicles are offered, issued and traded in
public capital markets. A private company, with no shares listed publicly, can still issue
other securities to the public and have them traded on an exchange. A public company
may also offer and list other securities alongside its shares.

Most public offerings are in the primary market that is, the issuing company itself is the
offeror of securities to the public. The offered securities are then issued (allocated,
allotted) to the new owners. If it is an offering of shares, this means that the company's
outstanding capital grows. If it is an offering of other securities, this entails the creation
or expansion of a series (of bonds, warrants, etc.). However, more rarely, public offerings
take place in the secondary market. This is called a secondary market offering: existing
security holders offer to sell their stake to other, new owners, through the stock exchange.
The offeror is different from the issuer (the company). A secondary market offering is still
a public offering with much the same requirements, including a prospectus.

 RIGHTS ISSUE:-

A rights issue is a dividend of subscription rights to buy additional securities in a company

made to the company's existing security holders. When the rights are for equity securities,
such as shares, in a public company, it is a non-dilutive pro rata way to raise capital. Rights
issues are typically sold via a prospectus or prospectus supplement. A rights issue is directly
distributed as a tax free dividend to all shareholders of record or through broker dealers of
record and may be exercised in full or partially. Subscription rights may be transferable,
allowing the subscription-rightsholder to sell them on the open market. A rights issue to
shareholders is generally made as a tax-free dividend on a ratio basis (e.g. a dividend of
three subscription rights for two shares of common stock issued and outstanding). Because
the company receives shareholders' money in exchange for shares, a rights issue is a source
of capital.

 PREFERENTIAL ALLOTMENT:-

Preferential Allotment is the process by which allotment of securities/shares is done on a

preferential basis to a select group of investors. In this, Company makes bulk allotment of
Shares/ Securities to individuals, companies, venture capitalists or any other person through
a fresh issue of shares.

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 SEBI & PRIMARY MARKET:-
Measures undertaken by SEBI:
a) Entry norms
b) Promoter’s contribution
c) Disclosure
d) Book building
e) Allocation of shares
f) Market intermediaries

 ENTRY NORMS:-
 Track record of dividend payment for minimum 3 years preceding the issue.
 Already listed companies- when post-issue net worth becomes more that 5 times the pre-
issue net worth.
 Manufacturing Company not having such track record -appraise project by a public
financial institution or a scheduled commercial bank.
 For corporate body- 5 public shareholders for every Rs. 1 lakh of the net capital offer
made to the public.
 Banks 2 years of profitability for issues above par. Offer documents to companies.-

 PROMOTERS’ CONTRIBUTION:-
 Should not be less than 20% of the issued capital.
 Receiving of promoters’ contribution.
 Lock-in-period as per SEBI
 Cases of non-underwritten public issues.

 DISCLOSURE:-
 Draft prospectus
 UN audited financial results

 BOOK BUILDING:-
 SEBI recommends two-tier under writing system
 One of the modes of public issues through prospectus.
 Role of syndicate members and book runners.
 Minimum 30 centres -

 ALLOCATION OF SHARES:-
 Minimum application of shares.
 Reservation for small investors
 Allotment of securities

 MARKET INTERMEDIARIES:-
 Licensing of merchant bankers

36
  Licensing of underwriters, registrars transfer agents, etc
 Merchant bankers net worth-5 crores
 Segregate fund based from fee based activities

 Preferential Issue Of Equity Shares Or Convertible Securities Or Warrants To

Promoters And Promoter Group:-

In case of preferential issues, where any promoter or any member of the promoter group
has previously subscribed to the warrants of the company but failed to exercise the
warrants, the promoters and the promoter group shall be ineligible for issues of equity
shares or convertible securities or warrants for a period of one year from the date of expiry
of the currency/cancellation of the warrants. Further, if any member of the
promoters/promoter group has sold shares in the previous six months, then the
promoters/promoter group would be ineligible for allotment on preferential basis.

 News Report Appearing In The Media After Filing Of Draft Offer Document (DOD)
With SEBI:-

The merchant bankers shall submit a compliance certificate as to whether the contents of
the news reports/articles that appear after filing of DOD are supported by disclosures in the
offer document or not. This would apply in respect of news report/articles appearing in
newspapers stipulated in ICDR for issue advertisements, major business magazines and
also in the print and electronic media controlled by a media group where the media group
has a private treaty/shareholders’ agreement with the issuer company/promoters of the
issuer company.

 UNIFORM/SINGLE PAYMENT OPTION IN RIGHT ISSUES:-

Only one payment option shall be given by the issuer to all the shareholders, i.e., either (a)
part payment on application with balance money to be paid on calls, or (b) full payment on
application. Where the issuer opts for part payment, it shall be incumbent the issuer to
obtain approvals, if any, as may be necessary for the purpose.

 MINIMUM PROMOTERS’ CONTRIBUTION IN FURTHER PUBLIC OFFERS

(FPO’s):-

The requirement of promoters’ contribution shall not be applicable to FPOs where equity
shares of the issuer are not frequently traded in a recognized stock exchange for three years
and the issuer has a track record of dividend payment for three years.

 ALLOCATION IN PUBLIC ISSUES:-

Pursuant to recent amendments to SCRR, consequential amendments shall be made in

ICDR Regulations by deleting the second provision to clause (c) of sub-regulation (2) of
Regulation 43.

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 EXTENSION OF APPLICABILITY OF CLAUSE 5A OF EQUITY LISTING
AGREEMENT FOR UNCLAIMED EQUITY SHARES IN PHYSICAL FORM:-

Clause 5A of the Equity Listing Agreement shall be amended to provide that the unclaimed
shares issued in physical form shall be dealt in the manner similar to the unclaimed shares
in de-mat form.

Role Of SEBI With Respect To Public Issues

The Securities and Exchange Board Of India (SEBI) govern the rules, regulations and
procedures relating to public issues in India. Any company going public in India should get
approval from SEBI before opening its IPO. Issuer companies lead managers submit the public
issue prospectus to SEBI, provide clarification, make changes to the prospectus suggested by
SEBI and get it approve. In simple words SEBI validate the IPO prospectus and make sure all
the declaration made in this document are correct and also make sure that document has enough
information made in this document are correct and also make sure that document has enough
information to help investors to take decision before applying shares in an IPO. Any company
making a public issue or a listed company making a rights issue of value of more than Rs. 50
lakhs is required to file a draft offer document with SEBI for its observations. The company
can proceed further on the only after getting observations from SEBI. The validity period of
SEBI’s observation letter is three months only i.e. the company has to open its issue within
three months period after the observations are issued by SEBI.

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 SECONDARY MARKET

The secondary market, also called the aftermarket and follow on public offering is the
financial market in which previously issued financial instrument such as stock, bonds, options,
and futures are bought and sold.[1] Another frequent usage of "secondary market" is to refer to
loans which are sold by a mortgage bank to investors. With primary issuances of securities or
financial instruments, or the primary market, investors purchase these securities directly from
issuers such as corporations issuing shares in an IPO or private placement, or directly from the
federal government in the case of treasuries. After the initial issuance, investors can purchase
from other investors in the secondary market. The secondary market for a variety of assets can
vary from loans to stocks, from fragmented to centralized, and from illiquid to very liquid. The
major stock exchanges are the most visible example of liquid secondary markets - in this case,
for stocks of publicly traded companies. Exchanges such as the New York Stock Exchange,
London Stock Exchange and Nasdaq provide a centralized, liquid secondary market for the
investors who own stocks that trade on those exchanges. Most bonds and structured products
trade “over the counter,” or by phoning the bond desk of one’s broker-dealer. Loans sometimes
trade online using a Loan Exchange. In the secondary market, securities are sold by and
transferred from one investor or speculator to another. It is therefore important that the
secondary market be highly liquid.

39
The most important feature of the secondary market is to create liquidity in securities. Liquidity
means immediate conversion of securities into cash. This job is performed by the secondary
market. Any new security cannot be sold for the first time in the secondary market. New
securities are first sold in the primary market and thereafter comes the turn of the secondary
market. The secondary market has a particular place which is called Stock Exchange. However,
it must be noted that it is not essential that all the buying and selling of securities will be done
only through stock exchange. Two individuals can buy or sell them mutually. This will also be
called a transaction of the secondary market. Generally, most of the transactions are made
through the medium of stock exchange. The rates of shares and other securities often fluctuate
in the share market. Many new investors enter this market to exploit this situation. This leads
to an increase in investment in the industrial sector of the country.

 SEBI & SECONDARY MARKET:-

Reforms in the secondary market:
a) Governing Bonds
b) Infrastructure
c) Settlement & clearing
d) Debt market
e) Price Stabilization
f) Delisting
g) Brokers
h) Insider Trading
40
 GOVERNING BONDS:-
 Brokers and non-brokers representation made 50:50
 60% of brokers in arbitration, disciplinary & default committees
 For trading members 40% representation

 INFRASTRUCTURE:-
 On-line screen based trading terminals-

 SETTLEMENT & CLEARING:-

 Weekly settlements
 Auctions for non-delivered shares within 80 days
 Advice to set-up clearing houses, clearing corporation or settlement guarantee fund
 Warehousing facilities permitted by SEBI.

Departments Of SEBI regulating trading in the Secondary Market:-

 MARKET INTERMEDIARIES REGISTRATION AND SUPERVISION
DEPARTMENT (MIRSD):

Registration, supervision, compliance monitoring and inspections of all market

intermediaries in respect of all segments of the markets viz. equity, equity derivatives, debt
and debt related derivatives.

 MARKET REGULATION DEPARTMENT (MRD):-

Formulating new policies and supervising the functioning and operations (except relating
to derivatives) of securities exchanges, their subsidiaries, and market institutions such as
Clearing and Settlement organizations and Depositories (Collectively referred to as Market
SRO’s)

 Derivatives and New Products Departments (DNDP):-

Supervising trading at derivatives segments of stock exchanges, introducing new products

to be traded, and consequent policy changes.

41
 STOCK EXCHANGES

A stock exchange, securities exchange or bourse, is a facility where stock brokers and traders
can buy and sell securities, such as shares of stock and bonds and other financial instruments.
Stock exchanges may also provide for facilities the issue and redemption of such securities and
instruments and capital events including the payment of income and dividends. Securities
traded on a stock exchange include stock issued by listed companies, unit trusts, derivatives,
pooled investment products and bonds. Stock exchanges often function as "continuous auction"
markets with buyers and sellers consummating transactions at a central location such as the
floor of the exchange. Many stock exchanges today use electronic trading, in place of the
traditional floor trading.
To be able to trade a security on a certain stock exchange, the security must be listed there.
Usually, there is a central location at least for record keeping, but trade is increasingly less
linked to a physical place, as modern markets use electronic networks, which give them
advantages of increased speed and reduced cost of transactions. Trade on an exchange is
restricted to brokers who are members of the exchange. In recent years, various other trading
venues, such as electronic communication networks, alternative trading systems and "dark
pools" have taken much of the trading activity away from traditional stock exchanges.
Initial public offerings of stocks and bonds to investors is done in the primary market and
subsequent trading is done in the secondary market. A stock exchange is often the most
important component of a stock market. Supply and demand in stock markets are driven by
various factors that, as in all free markets, affect the price of stocks.

42
 POWERS OF SEBI IN STOCK EXCHANGES:-

 Power To Call For Information:-

 The Board may from time to time call for any information, documents or records from the
recognized clearing corporation, or their governing board or any shareholder thereof.

 Power Of Inspection:-

 The Board may at any time undertake inspection, conduct inquiries and audit of any
recognized stock exchange or recognized clearing corporation, any associate of such
exchange or clearing corporation, any shareholder of such stock exchange or clearing
corporation or any associate and agent of such shareholder.

 Where an inspection under sub-regulation (1) is undertaken by the Board, such recognized
stock exchange or recognized clearing corporation or shareholder or associate and every
manager, director, managing director, chairperson or officer and other employee of such
recognized stock exchange, recognized clearing corporation, shareholder or associate shall
co-operate with the Board.

 Direction By The Board:-

Without prejudice to exercise of its powers under the provisions of the Act or the Securities
and Exchange Board of India Act, 1992 and rules and regulations made there under, the
Board may, either sue moto or on receipt of any information or during pendency of any
inspection, inquiry or investigation or on completion thereof, in the interest of public or
trade or investors or the securities market, issue such directions as it deems fit, including
but not limited to any or all of the following:

 Directing a person holding equity shares or rights over equity shares in a recognized
stock exchange or recognized clearing corporation in contravention of these
regulations to divest his holding, in such manner as may be specified in the direction;
 Directing transfer of any proceeds or securities to the Investor Protection Fund of a
recognized stock exchange or Settlement Guarantee Fund of a recognized clearing
corporation;
 Debarring any recognized stock exchange or recognized clearing corporation, any
shareholder of such recognized stock exchange or recognized clearing corporation,
or any associate and agent of such shareholder, or any transferee of shares from such
shareholder, directors and key management personnel of recognized stock exchange
and recognized clearing corporation from accessing the securities market or dealing
in securities for such period as may be determined by the Board.

 Power To Remove Difficulties:-

In order to remove any difficulties in the interpretation or application of the provisions of

these regulations, the Board shall have the power to issue directions through guidance notes
or circulars.
 Power To Specify Procedures, etc., And Issue Clarifications:-

43
 For the purposes of implementation of these regulations and matters incidental thereto, the
Board may specify norms, procedures, processes, manners or guidelines as specified in 21
these regulations, by way of circulars to recognized stock exchange(s) and recognized
clearing corporation(s).

 Repeal And Saving:-

 On and from the commencement of these regulations, the Securities Contracts (Regulation)
(Manner of Increasing and Maintaining Public Shareholding in Recognized Stock
Exchanges) Regulations, 2006, shall stand repealed.

 Notwithstanding such repeal, anything done or any action taken or purported to have been
taken or contemplated under the repealed regulations before the commencement of these
regulations shall be deemed to have been done or taken or commenced or contemplated
under the corresponding provisions of these regulations.

 After the repeal of the regulations referred to in sub-regulation (1), any reference thereto in
any regulation, guideline, circular or direction issued by the Board shall be deemed to be a
reference to the relevant provisions of these regulations.

44
 REGISTRATION CERTIFICATE:-
 Registration of stock brokers, sub-brokers, share transfer agents, etc.

 No stock-broker, sub- broker, share transfer agent, banker to an issue, trustee of trust deed,
registrar to an issue, merchant banker, underwriter, portfolio manager, investment adviser
and such other intermediary who may be associated with securities market shall buy, sell
or deal in securities except under, and in accordance with, the conditions of certificate of
registration obtained from the Board in accordance with the [regulations] made under this
Act:

Provided that a person buying or selling securities or otherwise dealing with the securities
market as a stock- broker, sub-broker, share transfer agent, banker to an issue, trustee of
trust deed, registrar to an issue, merchant banker, underwriter, portfolio manager,
investment adviser and such other intermediary who may be associated with securities
market immediately before the establishment of the Board for which no registration
certificate was necessary prior to such establishment, may continue to do so for a period
of three months from such establishment or, if he has made an application for such
registration within the said period of three months, till the disposal of such application.

Provided further that any certificate of registration, obtained immediately before the
commencement of the Securities Laws (Amendment) Act, 1995, shall be deemed to have
been obtained from the Board in accordance with the regulations providing for such
registration.
 No depository, [participant,] custodian of securities, foreign institutional investor,
credit rating agency or any other intermediary associated with the securities market as
the Board may by notification in this behalf specify, shall buy or sell or deal in securities
except under and in accordance with the conditions of a certificate of registration
obtained from the Board in accordance with the regulations made under this Act:
Provided that a person buying or selling securities or otherwise dealing with the
securities market as a depository, [participant,] custodian of securities, foreign
institutional investor or credit rating agency immediately before the commencement of
the Securities Laws (Amendment) Act, 1995, for which no certificate of registration
was required prior to such commencement, may continue to buy or sell securities or
otherwise deal with the securities market until such time regulations are made under
clause (d) of sub-section (2) of section 30.

 No person shall sponsor or cause to be sponsored or carry on or cause to be carried on

any venture capital funds or collective investment schemes including mutual funds,
unless he obtains a certificate of registration from the Board in accordance with the
regulations:
Provided that any person sponsoring or causing to be sponsored, carrying on or
causing to be carried on any venture capital funds or collective investment schemes
operating in the securities market immediately before the commencement of the
Securities Laws (Amendment) Act, 1995, for which no certificate of registration was
required prior to such commencement, may continue to operate till such time
regulations are made under clause (d) of sub-section (2) of section 30.

45
 Every application for registration shall be in such manner and on payment of such fees as
may be determined by regulations.

 The Board may, by order, suspend or cancel a certificate of registration in such manner as
may be determined by regulations. Provided that no order under this sub-section shall be
made unless the person concerned has been given a reasonable opportunity of being heard.

FINANCE, ACCOUNTS AND AUDIT OF SEBI

Chapter VI of the Act provides for Finance, Accounts and Audit of SEBI.

 Fund

The Central Government may, after due appropriation made by Parliament by law in this
behalf, make to SEBI grants of such sums of money as the Central Government may think fit
for being utilized for the purposes of this Act. There shall be constituted a fund to be called the
Securities and Exchange Board of India General Fund and there shall be credited thereto all
grants, fees and charges received by SEBI under this Act; all sums received by SEBI from such
other sources as may be decided upon by the Central Government. The Fund shall be applied
for meeting the salaries, allowances and other remuneration of members, officers and other
employees of SEBI, the expenses of SEBI in the discharge of its functions and the expenses on
objects and for purposes authorized by this Act.

 Account and Audit

SEBI shall maintain proper accounts and other relevant records and prepare an annual
statement of accounts in such form as may be prescribed by the Central Government in
consultation with the Comptroller and Auditor General of India. The accounts of SEBI shall be
audited by the Comptroller and Auditor General of India at such intervals as may be specified
by him and any expenditure incurred in connection with such audit shall be payable by SEBI
to the Comptroller and Auditor General of India. The Comptroller and Auditor General of India
and any other person appointed by him in connection with the audit of the accounts of the
Board shall have the same rights and privileges and authority in connection with such audit as
the Comptroller and Auditor General generally has in connection with the audit of the
Government accounts and, in particular, shall have the right to demand the production of books,
accounts, connected vouchers and other documents and papers and to inspect any of the offices
of SEBI. The accounts of SEBI as certified by the Comptroller and Auditor General of India
or any other person appointed by him in this behalf together with the audit report thereon shall
be forwarded annually to the Central Government and that Government shall cause the same
to be laid before each House of Parliament.

46
 PENALTIES FOR FAILURES

Chapter VIA of SEBI Act deals with penalties which can be imposed under the Act for various
failures, defaults, non-disclosure and other offences.

It may be recalled that Section 11(2)(i) empowers SEBI to call for information and conduct
enquiries and audits of the stock exchanges, mutual funds, other persons associated with
securities markets, intermediaries and self-regulatory organizations in the security market. Also
Section 11(ia) of the Act requires calling for information and record from any bank or any other
authority or board or corporation established or constituted by or under any central, state or
provincial Act in respect of any transaction in securities which is under investigation or inquiry
by SEBI.

 Penalty For Failure To Furnish Information, Return, etc.,:-

Section 15A lays down that if any person who is required under SEBI Act or any rules or
regulations made thereunder, he shall be liable to a penalty of one lakh rupees for each day
during which such failure continues or one crore rupees whichever is less, if :

(a) to furnish any document, return or report to SEBI, fails to furnish the same;
(b) to file any return or furnish any information, books or other documents within the time
specified therefor in the regulations, fails to file return or furnish the same within the time
specified therefor in the regulations;
(c) to maintain books of accounts or records, fails to maintain the same.

 Penalty For Failure By Any Person To Enter Into Agreement With Clients:-

Section 15B lays down that if any person who is registered as an Intermediary and is
required under this Act or any rules or regulations made thereunder, to enter into an
agreement with his client, fails to enter into such agreement, he shall be liable to pay a
penalty of one lakh rupees for each day during which such failure continues or one crore
rupees whichever is less.

 Penalty For Failure To Redress Investors’ Grievances:-

Section 15C lays down that if any listed company or any person who is registered as an
Intermediary, after having been called upon by SEBI in writing to redress the grievances
of Investor, fails to redress such grievances within the time specified by SEBI, such
company or intermediary shall be liable to pay a penalty of one lakh rupees for each day
during which such failure continues or one crore rupees whichever is less.

 Penalties for Default:-

Section 15D and 15F provide for penalties for default in case of mutual funds:

Section 15D lays down that in case of mutual funds, if any person who is:
(i) required under this Act or any rules or regulations made thereunder to obtain a certificate
of registration from SEBI for sponsoring or carrying on any collective investment scheme,

47
 including mutual funds, sponsors or carries on any collective investment scheme, including
mutual funds, without obtaining such certificate of registration, he shall be liable to a
penalty of one lakh rupees for each day during which he sponsors or carries on any such
collective investment scheme, including mutual funds, or one crore rupees, whichever is
less;

(ii) registered with SEBI as a collective investment scheme, including mutual funds, for
sponsoring or carrying on any investment scheme, fails to comply with the terms and
conditions of certificate of registration, he shall be liable to a penalty of one lakh rupees for
each day during which such failure continues or one crore rupees, whichever is less;

(iii)registered with SEBI as a collective investment scheme, including mutual funds, fails to
make an application for listing of its schemes as provided for in the regulations governing
such listing, he shall be liable to penalty of one lakh rupees for each day during which such
failure continues or one crore rupees, whichever is less;

(iv) registered as a collective investment scheme, including mutual funds, fails to dispatch unit
certificates of any scheme in the manner provided in the regulation governing such
dispatch, he shall be liable to a penalty of one lakh rupees for each day during which such
failure continues or one crore rupees, whichever is less;

(v) registered as a collective investment scheme, including mutual funds, fails to refund the
application monies paid by the investors within the period specified in the regulations, he
shall be liable to a penalty of one lakh rupees for each day during which such failure
continues or one crore rupees, whichever is less;

(vi) registered as a collective investment scheme, including mutual funds, fails to invest money
collected by such collective investment schemes in the manner or within the period
specified in the regulations, he shall be liable to a penalty of one lakh rupees for each day
during which such failure continues or one crore rupees, whichever is less.

 Penalty For Failure To Observe Rules And Regulations By An Asset Management

Company:-

Section 15E lays down that where any asset management company of a mutual fund
registered under SEBI Act fails to comply with any of the regulation providing for
restrictions on the activities of such company, it shall be liable to a penalty of one lakh
rupees for each day during which such failure continues or one crore rupees, whichever is
less.

 Penalties For Default In Case Of Stock Brokers:-

Section 15F provides if any person registered as a stock broker under SEBI Act:

a) fails to issue contract notes in the form and in the manner specified by the stock
exchange of which such broker is a member, he shall be liable to a penalty not exceeding
five times the amount for which the contract note was required to be issued by that
broker;
b) fails to deliver any security or fails to make payment of the amount due to the investor
in the manner within the period specified in the regulations, he shall be liable to a penalty

48
 of one lakh rupees for each day during which such failure continues or one crore rupees,
whichever is less;
c) charges an amount of brokerage which is in excess of the brokerage specified in the
regulations, he shall be liable to a penalty of one lakh rupees or five times the amount
of brokerage charged in excess of the specified brokerage, whichever is higher.

 Penalty for Insider Trading:-

Section 15G lays down that if any insider:

a) either on his own behalf or on behalf of any other person, deals in securities of a body
corporate listed on any stock exchange on the basis of any unpublished price sensitive
information; or
b) communicates any unpublished price sensitive information to any person, with or
without his request for such information except as required in the ordinary course of
business or under any law; or
c) counsels, or procures for any other person to deal in any securities of anybody corporate
on the basis of unpublished price sensitive information,
he shall be liable to a penalty of twenty five crore rupees or three times the amount of profits
made out of insider trading, whichever is higher.

 Penalty For Non-Disclosure Of Acquisition Of Shares And Takeovers:-

Section 15H lays down that if any person fails to:

a) disclose the aggregate of his shareholding in the body corporate before he acquires any
shares of that body corporate; or
b) make such a public announcement to acquire shares at a minimum price; or
c) make a public offer by sending letter of offer to the shareholders of the concerned
company; or
d) make a public offer by sending letter of offer to the shareholders of the concerned
company; or
he shall be liable to a penalty of twenty five crore rupees or three times the amount of profits
made out of such failure, whichever is higher.

 Penalty for fraudulent and unfair trade practices:-

Section 15HA provides that If any person indulges in fraudulent and unfair trade practices
relating to securities, he shall be liable to a penalty of twenty-five crore rupees or three
times the amount of profits made out of such practices, whichever is higher.

 Penalty Por Contravention Where No Separate Penalty Has Been Provided:-

Section 15HB Whoever fails to comply with any provision of this Act, the rules or
regulations made or directions issued by SEBI thereunder for which no separate penalty
has been provided, shall be liable to a penalty which may extend to one crore rupees.

49
 ADJUDICATIONS:-

Section 15-I & J deal with SEBI’s power to adjudicate and factors to be taken into account
by the adjudicating officer:

 For the purpose of adjudging the penalties for failure, SEBI appoints any of its officers
not below the rank of Division Chief to be an adjudicating officer for holding an 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 has powers 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, he may impose
such penalty as he thinks fit in accordance with the provisions of any of those sections.
 SEBI may call for and examine the record of any proceedings under this section and if it
considers that the order passed by the adjudicating officer is erroneous to the extent it is
not in the interests of the securities market, it may, after making or causing to be made
such inquiry as it deems necessary, pass an order enhancing the quantum of penalty, if the
circumstances of the case so justify:

However, no such order shall be passed unless the person concerned has been given an
opportunity of being heard in the matter. Further that nothing contained in this sub-section shall
be applicable after an expiry of a period of three months from the date of the order passed by
the adjudicating officer or disposal of the appeal under section 15T, whichever is earlier.
50
 Factors to be taken into account by the adjudicating officer:-

Section 15J lays down that while adjudging the amount of penalty, the adjudicating officer
shall have due regard to the following factors viz.,
 the amount of disproportionate gain or unfair advantage, wherever quantifiable, made
as a result of the default;
 the amount of loss caused to an investor or group of investors as a result of the default;
 the repetitive nature of the default.

Section 15JA provides that all sums realized by way of penalties under this Act shall be credited
to the consolidated fund of India.

51
 SEBI (SETTLEMENT OF ADMINISTRATIVE & CIVIL PROCEEDINGS)
REGULATIONS, 2014

Under the SEBI Act,1992, Securities Contracts (Regulation) Act,1956 (SCRA) and the
Depositories Act, 1996, SEBI pursues two streams of enforcement actions i.e.
Administrative/Civil or Criminal. Administrative/civil actions include issuing directions such
as remedial orders, cease and desist orders, suspension or cancellation of certificate of
registration and imposition of monetary penalty under the respective statutes and action
pursued or defended in a court of law/tribunal. Criminal action involves initiating prosecution
proceedings against violators by filing complaint before a criminal court. Consent order is a
remedial measure for settling civil proceedings initiated by SEBI.

Consent Order means an order settling administrative or civil proceedings between the
regulator and a person (Party) who may prima facie be found to have violated securities laws.
Consent Order provides flexibility of wider array of enforcement and remedial actions which
will achieve the twin goals of an appropriate sanction, remedy and deterrence without resorting
to litigation, lengthy proceedings and consequent delays.

SEBI vide circular ref no. EFD/ED/Cir-1/2007 dated April 20, 2007 laid down the framework
for passing of consent orders and for considering requests for composition of offences under
SEBI Act, SC(R) Act and Depositories Act. Again in the year 2012 SEBI with the purpose of
providing more clarity on its scope and applicability, partially modified the same.

The President of India promulgated the Securities Laws (Amendment) Second Ordinance, 2013
on September 16, 2013 conferring explicit powers on SEBI to settle administrative and civil
proceedings under section 15JB of the Securities and Exchange Board of India Act, 1992(SEBI
Act), section 23JA of the Securities Contracts (Regulation) Act, 1956 and section 19-IA of the
Depositories Act, 1996.

The said Ordinance provided that SEBI may, after taking into consideration the nature, gravity
and impact of defaults, agree to the proposal for settlement, on payment of such sum by the
defaulter or on such other terms as may determine by SEBI in accordance with the regulations
made under SEBI Act. The said Ordinance further provided that the settlement proceedings
shall be conducted in accordance with the procedure specified in the regulations made under
SEBI Act. In this direction SEBI also placed a draft consultation paper on SEBI (Settlement of
Administrative and Civil Proceedings) Regulations, 2013 on its website for public comments.

In the light of the above, SEBI framed SEBI (Settlement of Administrative and Civil
Proceedings) Regulations, 2014 and notified it vide Circular No. LAD-NRO/GN/2013-
14/37/50 dated 09 January, 2014. These regulations will enable the persons who have defaulted
on any SEBI laws & civil proceedings have been initiated against them, to settle the
proceedings. These regulations do not provide for settling proceedings which are under
criminal in nature.

These regulations provides for the involved entity to file settlement plea within 60 days of the
show cause notice served to them by SEBI. The charges and related costs would not be
considered upon the payment of settlement also in the cases in which the applicant has already
been a party to two earlier settlements. The regulation mentions the minimum amount to be

52
paid by entities, which will vary as per the charges against them. These charges will be highest
for the promoters.

The SEBI (Settlement of Administrative & Civil Proceedings) Regulations, 2014 is divided
into VIII chapters and two schedules. Chapter 1 covers the preliminary definitions part. Chapter
II deals with the application for settlement and limitations part. Chapter III stipulates the scope
of settlement proceedings, withdrawal of application for settlement, effect of pending
application on the specified proceedings etc., Chapter V deals with the terms of settlement like
monetary and non- monetary terms, factors to be considered to arrive at the settlement terms,
Chapter V defined the role of the internal committee and high powered advisory committee in
order to impart transparency in the process, Chapter VI provides the procedure of settlement
before the internal committee and high powered advisory committee, Chapter VII deals with
Settlement orders like settlement of proceeding before the adjudicating officer and SEBI or
Settlement proceeding pending before tribunal or any court, Rejection of application in certain
eventualities and chapter VIII deals with miscellaneous information like confidentiality of
information, power to remove difficulties, SEBI’s power to specify procedures, Rescission
and savings etc. Schedule I is divided into three parts A, B & C respectively and Schedule II is
again divided into seven chapters. The highlights of the Regulations in brief is discussed below:

 Scope Of Settlement Proceeding:

Regulation 5 deals with the scope settlement proceedings. It provides that an application for
settlement of any specified proceeding shall not be considered, if:

a) the alleged default was committed within a period of 24 calendar months from the date of
the last settlement order where the applicant was a party.
b) An earlier application with regard to the same alleged default has been rejected;
c) the applicant has been party to two settlement orders during the period of thirty six
calendar months, prior to the date of applications;
d) the audit or investigation, if any, in respect of any alleged default, is not complete.
The following proceedings are out of the scope of this regulations, i.e. a specified proceeding
cannot be settled, if it involves any of the following defaults:

a) defaults involving insider trading and communication of unpublished price sensitive

information ;
b) fraudulent and unfair trade practices including front running, which in the opinion of SEBI
are serious and have a market wide impact or have caused substantial losses to or affect
the rights of investors in securities, especially retail investors and small shareholders:
c) failure to make an open offer except where the applicant agrees to make the open offer or
where SEBI is of the opinion that the making of the open offer would not be beneficial
to the shareholders or is infructuous;
d) defaults or manipulative practices by mutual funds, alternative investment funds,
collective investment schemes and their sponsors or asset management companies,
collective investment management company, managers, trustees that result in substantial
losses to investors, except in cases where the applicant has compensated the investors for
the losses, to the satisfaction of SEBI;
e) failure to redress investor grievances except where the alleged default is with regard to
delayed redressal;
f) failure, by issuers of securities or entities who invite investment, to make material
disclosures in offer documents;

53
 g) raising of monies by issuance of securities or pooling of funds, in violation of securities
laws where the remedy is refund of such monies;
h) non-compliance of notices and summons issued by SEBI or summons issued by the
adjudicating officer;
i) non-compliance of any order or direction passed under the securities laws.
So any civil proceedings apart from above can be brought under these regulations & can be
settled.

SEBI (PROCEDURE FOR SEARCH AND SEIZURE) REGULATIONS,

2014

The Securities Laws (Amendment) Second Ordinance, 2013 was promulgated on September
16, 2013 conferring explicit powers on the Chairman, SEBI to authorize Investigating
Authority or any other officer of SEBI to conduct search and seizure under sub-section (8) of
section 11C of the SEBI Act, 1992.

The said Ordinance vide sub-section (9) of section 11C of the SEBI Act, provides that SEBI
may make regulations in relation to search and seizure under section 11C of the SEBI Act. A
corresponding provision as clause (cc) has also been inserted in sub-section (2) of section 30
of SEBI Act enabling SEBI to frame regulations providing for the procedure to be followed by
the authorized officer for search or seizure under sub-section (8) of section 11C of SEBI Act.

In order to exercise the powers of search and seizure at the time of Investigation, harmonious
with the rights of the persons who are subjected to search of their person and property, while
pursuing the SEBI’s statutory mandate of investor protection, detailed procedures relating to
the procedural safeguards during different stages of search and seizure and the rights of those
persons subjected to search and the obligations of the authorized persons, SEBI placed a draft
regulations titled SEBI (Procedure for Search and Seizure) Regulations, 2013 dated 14.11.2013
and invited comments from the public on the draft regulations.

Keeping the above in perspective, SEBI on January 10, 2014 issued the SEBI (Procedure for
Search and Seizure) Regulations, 2014, specifying detailed procedures to be followed at
different stages of an investigation.

The salient features of the Regulation are as under:

 Warrant Of Authority:-

The authorized officer by SEBI is the Investigation authority under these regulations given
power to cause search and seizure. If the investigation authority believes that any or all of the
grounds specified in Section 11C(8) of the Act exist, he may make a request either in writing
or in electronic mode in Form A to the Chairman of the SEBI with the request to issue a warrant
of authority specifying the grounds and reasons for multiple execution, if required. In the

54
request the details of the person or enterprise and its building, place, vessel, vehicle or aircraft
whose search is required to be authorized.

On receipt of the request from the Authority the Chairman may, after being satisfied that it is
necessary to do so, authority the Investigating Authority or any other officer of SEBI as the
Authorized Officer by issuing a Warrant of Authority in Form B, duly signed by the Chairman
and sealed. The Chairman may authorize multiple execution of the warrant of authority during
the period in which it is in force.

Every warrant issued shall remain in force until it is cancelled by the Chairman or until it is
executed, or till the expiry of the time limit specified for execution in the warrant of authority,
whichever is earlier. A warrant of authority issued to any officer of SEBI shall expire on the
date of the order of the transfer of such order. A warrant issued to more than one officer of
SEBI, may be executed by all or any one or more of them. The warrant shall be returned to the
Chairman after being executed fully along with the seizure memo or if not executed, whether
partially or not, within the time authorized, if any, for its execution, on the expiry of such time.
The authorized officer shall make an endorsement on the warrant of authority stating as to the
powers which have been exercised by him under such authority.

 Procedure To Search:-

The following is the procedure in respect of a search:

 Relating to witness
 Before making a search, the authorized officer shall call upon two or more independent
and respectable inhabitants of the locality in which the place to be searched to situate or
any other locality if no such inhabitant of the said locality is availing or is willing to be
a witness to the search, to attend and witness the search and may issue an order in writing
to them or any of them so to do
 If the authorized officer finds that no witness is available, he shall execute the warrant
of authority on the execution being video graphed and the search shall not be invalid on
the mere ground that no one has stood as witness to the search;
 No person witnessing the search shall be compelled to be a witness in any quasi-judicial
proceedings under the securities laws except as and when summoned by SEBI or the
authority before whom such proceedings are pending;

 Relating to places and buildings

 It shall be lawful for the authorized officer executing the warrant of authority to enter
into such buildings or place, to break open any outer or inner door or window of any
building or place, whether that of the person to be searched or any other person, if after
notification, be cannot otherwise obtain admittance;
 If such building or place is an apartment in actual occupancy of a woman, the authorized
Officer shall before entering such place give notice to such woman that she is at liberty
to withdraw and shall afford her every reasonable facility for withdrawing and may then
break open any outer or inner door or window of the apartment and enter it;
 The authorized officer may require any person who is the owner or has the immediate
possession or control of any box, locker, safe, almirah or any other receptacle situate in
such building, place to open the same and allow access to inspect or examine its contents
and where the keys are not available or where such person fails to comply with any such
requirement, may cause any action to be taken including the breaking open of such box,

55
 locker, safe, almirah or other receptacle which the Authorized Officer may deem
necessary for carrying out all or any of the purposes specified under the warrant of
authority;
 The Authorized Officer may require, pending the commencement of the search, any
person not to remove from such building or place any article or other thing;
 The Authorized Officer may require the service of any police officer or of any officer of
the Central Government or State Government or all of them to assist him for all or any
of the purposes specified in the Warrant of Authority;
 The Authorized Officer may search, with such assistance, any building or place,
authorized to be searched, where such information or documents are expected or
believed to be kept;

 Relating to vessel, vehicle or aircraft:-

 The Authorized Officer on production of the warrant of authority to the person in charge
of vessel, vehicle or aircraft, shall have the free ingress to vessel, vehicle or aircraft for
the execution;
 It shall be lawful for the Authorized Officer to require the person for the time being
control of the vehicle, vessel or aircraft to stop any such of them from moving; if it is in
move compel them to stop;
 The Authorized Officer shall have the authority to break open any outer or inner door or
window of any such of them, if after notification of the authority and purpose and
demand of admittance duly made, he cannot obtain otherwise;
 If the same is occupied by a woman who according to custom does not appear in public,
the Authorized Officer shall, before entering such of them, give notice to such woman
that she is at liberty to withdraw and shall afford her every reasonable facility for
withdrawing;
 The authorized officer may require any person who is the owner or has the immediate
possession or control of any box, locker, safe, almirah or any other receptacle situate in
such of them, place to open the same and allow access to inspect or examine its contents
and where the keys are not available or where such person fails to comply with any such
requirement, may cause any action to be taken including the breaking open of such box,
locker, safe, almirah or other receptacle which the Authorized Officer may deem
necessary for carrying out all or any of the purposes specified under the warrant of
authority;
 If the same is found unsuitable for the search the Authorized Officer shall require the
person in charge to take the same to the place which is considered suitable for the search
and require that person to accompany with them;
 If the same is found unsuitable for the search the Authorized Officer shall require the
person in charge to take the same to the place which is considered suitable for the search
and require that person to accompany with them;
 The Authorized Officer may take the services of the any police officer or any officer of
the Central or State Government or all of them to assist him for all or any of the purposes;
 The Authorized officer may search with such assistance the vehicle, vessel or aircraft
where such information or documents are expected or believed to be kept.

 Search Of Person:-
 Any person who has got out of or is about to get into or is in the building, place, vessel,
vehicle or aircraft authorized to be searched is suspected that he has secreted any books
of account or other documents then the Authorized Officer shall made a search for that
person;

56
  Any person who has got out of or is about to get into or is in the building, place, vessel,
vehicle or aircraft authorized to be searched is suspected that he has secreted any books
of account or other documents then the Authorized Officer shall made a search for that
person;
 If such a person is a female, the search shall be made by a female officer with strict
regard to decency;
 The Authorized Officer may require the services of any police officer or of any officer
of the Central or State Government or all of them to assist him in the search.

 Search of Computer:-
 The Authorized Officer, in the process of search may use reasonable measures to access
a computer system that the person being searched is carrying or that is in the person’s
physical possession or immediate control;
 He may operate any computer or other device or cause any such computer or other
devices to be operated by a person accompanying the Authorized Officer; and
 He may require any person to facilitate access, to provide access to the information held
in any such computer or other device which can be accessed by the use of that computer
or data storage device
 To get any password necessary to operate; or
 Otherwise to enable to examine the information accessible by the computer in a form
in which the information is visible and legible.

 Power of Inspection:-

The Authorized Officer if so authorized shall have the power of inspection of the
documents found in any place, building, vessel, vehicle and aircraft.

 Power of seizure:-

The Authorized Officer shall have the power to seize any such books of account or other
documents found as a result of such search, or get the signature of such persons. If it is
not practicable to seize he may serve an order in Form C or Form D on the person who
has the owner or having the control, part with or otherwise deal with it except with the
previous permission of the Authorized Officer and such person shall there upon take such
steps as may be necessary for ensuring compliance with the order.

 Seizure Memo:-

In the seizure process the Authorized Officer may prepare a seizure memo in the
prescribed Form signed by two witnesses, containing a list of all documents seized or
copied in the course of such search and of the place in which they were respectively found
and verify the inventory of any such documents seized. In seizing the electronic storage
media he shall enter in Form F the description of the physical storage media that were
seized or copied. The seizure memo shall contain the following details

 The time of entry into and exit from place, building, vessel, vehicle or aircraft;
 The identity of the persons searched;
 The address of place and building and details of vessel, vehicle or aircraft searched;
 The details of officers present, if any, at the time of seizure;
 The details of other persons present, if any, at the time of seizure;

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  The signature of the authorized officer;
 The signature of the witnesses with thump impression and date;
 The description of identification mark, if any, placed by any person from whose
possession or control the documents are seized;
 The signature of the owner or the person who is in immediate possession or control of
premises, building, vehicle or aircraft, if available therein;
 The signature of the person from whom the seizure is affected.

 Powers Of Authorized Officer:-

The following are the powers of the Authorized Officer

 To place identification mark on any books of account or other documents;
 To make or cause to be made extracts or copy of documents of any books of account;
 To record on oath the statement of any person in the presence of two witnesses.

 Obligations Of The Authorized Officer:-

 Identify himself either by name or by official identification documents;
 Show the warrant of authority to the person concerned;
 Conduct search and seizure in the presence of the witnesses and prepare panchnama as
prescribed in Form G;
 Deliver a copy of the seizure memo to any person from whose possession or control the
documents are seized;
 Not enter at any place of business or profession after day time;
 Execute the warrant of authority within the time limit prescribed, if any, in the warrant
of authority.

 Rights of persons under search and persons in charge:-

The following are the rights of the persons under search and persons in charge
 To see the warrant of authority and authorized officer and to obtain a copy thereof;
 To verify the identity of the authorized officer and officials assisting him;
 To be present during the search and seizure;
 To put his own mark of identification on the documents seized along with his signature,
stamp, seal, etc.,;
 To have copy of document seized or take extracts in the presence of Authorized Officer
;
 To have a copy of any statement recorded during search and seizure.

 Obligations of persons under search and persons in charge:-

The following are the obligations on the part of the persons under search and persons in
charge:-
 Any person in charge of any building, place shall identify any person as may be required;
 Any person in charge of vessel, vehicle or aircraft on demand locate and identify the
vessel, vehicle or aircraft;
 Allow the Authorized Officer free ingress and afford all reasonable facilities for a
search;
 Stop the vessel or vehicle or stop and cause to be landed any aircraft on communication
of the Authorized Officer;
 Bound to disclose the password and such other information in case of computer devices;

58
  Provide necessary facility to inspect books of account or other documents;
 Identify the locker etc., and to hand over keys of the same to the Authorized Officer;
 No officer shall be prevented from execution of Warrant of Authority.

 Safe Custody of seized documents:-

The seized documents shall be transmitted in safe manner to the place of custody. The
Authorized Officer shall hand over the documents seized along with the seizure memo to
the Investigating Authority, who shall keep the same in his custody for such period not
later than the conclusion of the investigation as he considers necessary. The same shall
not be retained more than 180 days from the date of seizure except with the approval of
the Chairman. It shall be ensured that records in physical form are not altered, damaged,
mutilated and the records in electronic form is not altered or erased. It is also ensured that
the seized articles are stored, maintained in suitable physical and environmental
conditions.

 Return of documents:-

The Investigating Authority shall return the documents to the person from whom the same
were seized. Before returning such documents identification marks are to be
recorded. Any person information severable from any documents shall be returned to the
person to whom such information relates on a written request being made in this behalf
by him.

 Protection of Personal Information:-

The personal information contained in any document seized shall not be divulged to any
third person except for the compliance of any law for the time being in force, without the
consent of the person to whom the information relates.

 Retention of forensic copy:-

The forensic copy of the data or mirror image of the storage device and any copy thereof
may be retained, on being satisfied that such data or image has evidentiary value. Any
copy made or generated from any other document may be retained.

 Liability for non-compliance of obligations:-

Any intermediary who fails to comply with any of the obligations shall be liable for any
one or more of the following actions:-
 Adjudication under Section 15HB of SEBI Act;
 Proceedings under chapter V of SEBI (Intermediaries) Regulations, 2008;
 Prosecution under Section 24 of the Act. Any person other than an intermediary who
fails to comply with any of the obligations shall be liable for any one or more of the
following actions
 Adjudication under Section 15HB of SEBI Act;
 Action under Section 11B and Section 11(4) of the Act;
 Prosecution under Section 24 of the Act.

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 INVESTIGATION BY SEBI

Section 11C of the Act provides that where SEBI 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 thereunder. It may, at any time by order in writing, direct any person
specified in the order to investigate the affairs of such intermediary or persons associated with
the securities market and to report thereon to SEBI.

It is the duty of every manager, managing director, officer and other employee of the company
and every intermediary or every person associated with the securities market to preserve and
to produce to the Investigating Authority or any person authorized 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.

The Investigating Authority may require any intermediary or any person associated with
securities market in any manner to furnish such information to, or produce such books, or
registers, or other documents, or record before it or any person authorized by it in this behalf
as it may consider necessary if the furnishing of such information or the production of such
books, or registers, or other documents, or record is relevant or necessary for the purposes of
its investigation. The Investigating Authority may keep in its custody any books, registers,
other documents and record produced for six months and thereafter shall return the same to any
intermediary or any person associated with securities market by whom or on whose behalf the
books, registers, other documents and record are produced.

The Investigating Authority may call for any book, or register, other document and record if
they are needed again.

If the person on whose behalf the books, registers, other documents and record are produced
requires certified copies of the books, registers, other documents and record produced before
the Investigating Authority, it shall give certified copies of such books, registers, other
documents and record to such person or on whose behalf the books, registers, other documents
and record were produced.

Any person, directed to make an investigation may, examine on oath, any manager, managing
director, officer and other employee of any intermediary or any person associated with
securities market in any manner, in relation to the affairs of his business and may administer
an oath accordingly and for that purpose may require any of those persons to appear before it
personally.

If any person fails without reasonable cause or refuses to produce to the Investigating Authority
or any person authorized by it in this behalf any book, register, other document and record
which is his duty to produce; or to furnish any information which it is his duty to furnish; or to
appear before the Investigating Authority personally when required to do so or to answer any
question which is put to him by the Investigating Authority; or to sign the notes of any
examination referred in sub-section (7), he shall be punishable with imprisonment for a term
which may extend to one year, or with fine, which may extend to one crore rupees, or with

60
 both, and also with a further fine which may extend to five lakh rupees for every day after the
first during which the failure or refusal continues.

Sub-section 7 lays down that notes of any examination under sub-section (5) shall be taken
down in writing and shall be read over to, or by, and signed by, the person examined, and may
thereafter be used in evidence against him.

Sub-section 8 lays down that where in the course of an investigation, the Investigating
Authority has reason to believe that any person or enterprise, as the case may be, to whom a
notice under sub-section (3) has been issued or might be issued, –

a) has omitted or failed to provide the information or produce documents as required in the
notice; or
b) may not provide the information or produce documents which shall be useful for, or
relevant to, the investigation; or
c) may destroy, mutilate, alter, falsify or secrete the information or documents useful for, or
relevant to, the investigation, then, the Chairman may, after being satisfied that it is
necessary so to do, after recording the reasons thereof in writing, authorize the Investigating
Authority or any other officer of SEBI (the officer so authorized being hereinafter referred
to as the authorized officer), to –
i. enter and search, with such assistance, as may be required, the building, place, vessel,
vehicle or aircraft where such information or documents are expected or believed to be
kept;
ii. break open the lock of any door, box, locker, safe, almirah or other receptacle for
exercising the powers conferred by sub-clause (i), where the keys thereof are not
available;
iii. search any person who has got out of, or is about to get into, or is in, the building, place,
vessel, vehicle or aircraft, if the authorized officer has reason to suspect that such person
has secreted about his person any such books of account or other documents;
iv. require any person who is found to be in possession or control of any books of account or
other documents, maintained in the form of electronic record, to provide the authorized
officer the necessary facility to inspect such books of account or other documents.
v. seize any such books of account or other documents found as a result of such search;
vi. place marks of identification on any books of account or other documents or make or cause
to be made extracts or copies therefrom;
vii. record on oath the statement of any person who is found to be in possession or in control
of the information or documents referred to in sub-clauses (i), (iii) and (iv).

Sub-section 8A stipulates that the authorized officer may requisition the services of any police
officer or any office of the central Government, or of both, to assist him for all or any of the
purposes specified in sub section (8) and it shall be the duty of every such officer to comply
with such requisition.

Sub-section (9) empowered SEBI to make regulations in relation to any search or seizure under
this section and in particular, such regulations may provide for the procedure to be followed by
the authorized Officer-
i. for obtaining ingress into any building, place, vessel, vehicle or aircraft to be searched
where free ingress thereto is not available;
ii. for ensuring safe custody of any books of account or other documents or assets seized.

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Sub-section 10 provides that the Investigating Authority shall keep in its custody the books,
registers, other documents and record seized under this section for such period not later than
the conclusion of the investigation as it considers necessary and thereafter shall return the same
to the company or the other body corporate, or, as the case may be, to the managing director or
the manager or any other person, from whose custody or power they were seized. The
Investigating Authority may, before returning such books, registers, other documents and
record as aforesaid, place identification marks on them or any part thereof. Every search or
seizure made under this section shall be carried out in accordance with the provisions of the
Code of Criminal Procedure, 1973 relating to searches or seizures made under that Code as per
sub-section 11.

 CEASE AND DESIST PROCEEDINGS:-

Section 11D deals with the cease and desist powers pf SEBI. If SEBI 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. SEBI 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 recognized stock exchange unless SEBI has reasonable
grounds to believe that such company has indulged in insider trading or market
manipulation.

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 SECURITIES APPELLATE TRIBUNAL (SAT)

In order to afford proper appellate remedies, Chapter VIB of SEBI Act provides for the
establishment of the Securities Appellate Tribunals to consider appeals against SEBI’s orders,
of penalties.
As per Section 15K, the Central Government is empowered to establish by notifications one or
more Appellate Tribunals, to be known as the Securities Appellate Tribunals to exercise the
jurisdiction, power and authorities conferred on such Tribunal by SEBI Act or under the Act
or any other law for the time being in force. The Central Government has set up a tribunal at
Mumbai.
 COMPOSITION OF SAT

According to Section 15L, which deals with the composition of the Tribunal, the Securities
Appellate Tribunals shall consist of a Presiding Officer and two other members to be
appointed by the Central Government by notification.

 QUALIFICATION FOR APPOINTMENT AS PRESIDING OFFICER OR

MEMBER

Section 15M prescribes that a person shall not be qualified for appointment as the Presiding
Officer of Securities Appellate Tribunals unless he is a sitting or retired Judge of the
Supreme Court or a sitting or retired Chief Justice of a High Court or is a sitting or retired
Judge of a High Court who has completed not less than seven years of service as a Judge
in a High Court. It has also been prescribed that the presiding officer of the Securities
Appellate Tribunal shall be appointed by the Central Government in consultation with chief
justice of India or his nominee. A person shall not be qualified for appointment as a member
of Securities Appellate Tribunal unless he is a person of ability, integrity and standing who
has shown capacity in dealing with problems relating to securities market and has
qualification and experience of corporate law, securities laws, finance, economics or
accountancy.

A member of SEBI or any person holding a post at senior management level at SEBI cannot
be appointed as presiding officer or member of Securities Appellate Tribunal during his
service or tenure as such with SEBI or within two years from the date on which he ceases
to hold office as such in SEBI.

 TENURE OF OFFICER OF PRESIDING OFFICIER AND OTHER MEMBERS

Section 15N lays down that the Presiding Officer and every other member of Securities
Appellate Tribunal shall hold office for a term of five years from the date he enters upon
his office and is eligible for reappointment.

63
 It has also been provided that the person attaining the age of sixty eight years cannot hold
office as the presiding officer of Securities Appellate Tribunal. Also a person who has
attained the age of sixty two years cannot hold office as member of Securities Appellate
Tribunal.

 ORDERS CONSTITUTING APPELATE TRIBUNAL TO BE FINAL AND NOT TO

INVALIDATE ITS PROCEEDINGS

Section 15R makes it clear that no order of the Central Government appointing any person
as the Presiding Officer or a member of a Securities Appellate Tribunal shall be called in
question in any manner, and no Act or proceeding before a Securities Appellate Tribunals
shall be called in question in any manner on the ground merely of any defect in the
constitution of a Securities Appellate Tribunal.

 REQUIREMENTS FOR APPEAL TO THE TRIBUNAL

Section 15T and 15U deal with the appeal procedure and power of Securities Appellate
Tribunals. Section 15T lays down that any person aggrieved:

1) (a)by an order of SEBI made, under this Act, or the rules or regulations made thereunder;
or
(b)by an order made by an adjudicating officer under this Act may prefer an appeal to a
Securities Appellate Tribunal having jurisdiction in the matter.

2) Every appeal shall be filed within a period of 45 days from the date on which a copy of
the order made by SEBI or the Adjudicating Officer, as the case may be, is received by
him and it shall be in such form and be accompanied by prescribed fee. However, the
Securities Appellate Tribunal may entertain an appeal after the expiry of the said period
of 45 days if it is satisfied that there was sufficient cause for not filing it within that period.

3) On receipt of an appeal, the Securities Appellate Tribunal may, after giving the parties to
the appeal, an opportunity of being heard, pass such orders thereon as it thinks fit,
confirming, modifying or setting aside the order appealed against.

4) The Securities Appellate Tribunal shall send a copy of every order made by it to SEBI
and the parties to the appeal and to the concerned Adjudicating Officer.

5) The appeal filed before the Securities Appellate Tribunal shall be dealt with by it as
expeditiously as possible and endeavor shall be made by it to dispose of the appeal finally
within six months from the date of receipt of the appeal.

 PROCEDURE OF SECURITIES APPELLATE TRIBUNAL

As regards the procedure and powers of Securities Appellate Tribunal, Section 15U lays
down that the Securities Appellate Tribunal shall not be bound by the procedure laid down
by the Code of Civil Procedure, 1908, but shall be guided by the principles of natural justice

64
 and, subject to the other provisions of this Act and of any rules, the Securities Appellate
Tribunal shall have powers to regulate their own procedure including the places at which
they shall have their sittings.

 POWERS OF SECURITIES APPELLATE TRIBUNAL

The Securities Appellate Tribunals shall have, for the purposes of discharging their
functions under this Act, the same powers as are vested in a civil court under the Code of
Civil Procedure, 1908, while trying a suit, in respect of the following matters, namely:

a) summoning and enforcing the attendance of any person and examining him on oath;
b) requiring the discovery and production of documents;
c) receiving evidence on affidavits;
d) issuing commissions for the examination of witnesses or documents;
e) reviewing its decisions;
f) dismissing an application for default or deciding it ex part;
g) setting aside any order of dismissal of any application for default or any order passed by
it ex part;
h) any other matter which may be prescribed.

Every proceeding before the Securities Appellate Tribunal shall be deemed to be a

judicial proceeding within the meaning of sections 193 and 228, and for the purposes of
section 196 of the Indian Penal Code and the Securities Appellate Tribunal shall be
deemed to be a civil court for all the purposes of section 195 and Chapter XXVI of the
Code of Criminal Procedure, 1973.

 LEGAL REPRESENTATION

Section 15V permits the appellant either to appear in person or authorize one or more
Practicing Company Secretaries or Chartered Accountants or Cost Accountants or Legal
practitioners or any of its officers to present his or its case before the Securities Appellate
Tribunal.

 LIMITATION

As per the section 15W, the provisions of the Limitations Act, 1963 shall apply to an
appeal made to Securities Appellate Tribunal.

 PUBLIC SERVANTS

As per section 15X, the Presiding Officer and other officers and employees of Securities
Appellate Tribunal shall be deemed to be public servants within the meaning of Section
21 of the Indian Penal Code.

 JURISDICTION OF CIVIL COURT

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 Section 15Y lays down that no civil court has jurisdiction to entertain any suit or
proceeding in respect of any matter which an Adjudicating Officer appointed under this
Act or a Securities Appellate Tribunal under this Act is empowered by or under this Act
to determine and no injunction shall be granted by any court or other authority in respect
of any action taken or to be taken in pursuance of any power conferred by or under this
Act.

 APPEAL TO SUPREME COURT

Section 15Z lays down that any person aggrieved by any decision or order of the
Securities Appellate Tribunal may file an appeal to the Supreme Court within 60 days
from the date of communication of the decision or order of the Securities Appellate
Tribunal to him on any question of fact or law arising out of such order;

It has been provided that the Supreme Court may, if it is satisfied that the applicant was
prevented by sufficient cause from filing the appeal within the said period, allow it to be
filed within a further period not exceeding 60 days.

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 SEBI AS A REGULATOR

For a growing and dynamic economy like India, capital markets play an important role in
not just attracting domestic and foreign investment but also mirror the state of affairs in our
country. In order to present the Indian dream most favourably among investors, it is important
that our capital markets have a strong and non-manipulative infrastructure and to ensure this,
India has its capital market regulator, the Securities and Exchange Board of India – SEBI.

With changing times and while facing newer challenges, SEBI has always taken responsibility
for everything that is right or wrong in India’s capital markets. Even now, when SEBI finds
itself surrounded by the din of chit funds siphoning off crores of rupees from gullible investors
and a need for tightening insider trading norms; the Indian government has happily obliged to
SEBI’s demand for more powers. Accordingly the government has promulgated Securities
Laws (Amendment) Second Ordinance, 2013 that would amend the SEBI Act, the Securities
Contracts (Regulation) Act and the Depositories Act. With these amendments, SEBI will be
able to regulate any money pooling scheme worth Rs. 100 crore or more and attach assets in
cases of non-compliance. The SEBI Chairman would have the authority to order "search and
seizure operations". The amended law would also allow SEBI to seek information, such as
telephone call data records, from any persons or entities in respect to any securities transaction
being investigated by it. The law would further allow setting up of special courts to speed up
SEBI related cases.

 JOURNEY SO FAR:

SEBI, in its short journey of 25 years has made a remarkable impression on investors as well
as capital markets. Following are some of the changes introduced by SEBI…..

 Settlement System:-

SEBI introduced rolling settlement on a T+5 basis for domestic as well as foreign
institutional investors in 1998. Gradually reducing the settlement time since then, Indian
markets have switched to T+2 trading now.

 Dematerialization of Share Certificates:-

SEBI initiated the process of dematerialization of share certificates in 1999. The need for
this initiative was felt to avoid the threat of forgery or theft of share certificates coupled
with inordinate delay by transfer agents and post offices.

 Fostering Mutual Funds:-

SEBI regularly issues revised guidelines for mutual fund industry to help them flourish in
India. Till early 90s, Unit Trust of India was the only player in India's mutual fund market.
SEBI's efforts not only encouraged hundreds of mutual funds to enter the Indian markets,
but also gave an opportunity to not so savvy investors to invest in the markets through a
much safer way. To enhance the popularity of mutual funds, SEBI relaxed know your
customer (KYC) norms for small investors and widened the distribution network in rural

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 India by roping in postal agents. By banning entry loads for mutual fund schemes in 2009,
SEBI curbed mis-selling of mutual fund products.

 Rolling Out Red Carpet For FIIs:-

In order to keep a close eye on FII inflow; the task of giving approvals to FII registrations
was handed over to SEBI in 2003 and since then SEBI has been consistently revising the
FII investment limit in both corporate as well as government debt. Meanwhile, in order to
discourage FII investments made through P-notes, SEBI has imposed sufficient checks and
balances to avoid the flow of black money into the Indian markets.

 IPO reforms:-

SEBI had last year notified wide-ranging reforms in Initial Public Offer -IPO market which
included a strict vigil on usage of issue proceeds, greater disclosure by companies and their
bankers and allotment of a minimum number of shares to retail investors. Keeping with the
times, SEBI has also introduced e-IPO procedure for electronic bidding in public offers to
help investors bid for shares in a cost-effective manner.

 Surveillance and risk management:-

In 1996-97, SEBI directed all exchanges to fix the daily price band at 10% and a weekly
overall limit of 25% to curb undesirable volatility. To bring about a coordinated trading
halt in all equity and derivates market nationwide, SEBI introduced an index based circuit
breaker system applicable at 10%, 15% and 20% movement either way.

 Grievance redresses and investor awareness:-

SEBI has a web-based centralized grievance redress system called SEBI Complaints
Redress System – SCORES for assisting investors to lodge their complaints in a structured
way. Further, in its silver jubilee year, SEBI has launched a massive mass media exercise
to inform investors about SCORES and its toll free helpline (1800 266 7575 / 1XXX XX
7575, available in 14 languages). To reach rural masses, SEBI has tied up with the
department of posts to print cautionary messages on the back of post office passbooks while
for urbanites Google India’s Ad Word facility displays pop-up investor awareness
messages on its search engine.

 CHALLENGES AHEAD:-

With the advent of new technology, SEBI will have to continuously upgrade its manpower and
improve its capacities to deal with situations that can arise. Creating a more robust framework
to successfully deal with the menace of insider trading and strict implementation of buyback
norms will also play an important role in assuring a sustained investor interest. SEBI would
further have to strongly handle the issue of fraudulent collective investment schemes. Although
SEBI has approved a proposal to penalize unregistered CIS entities and has decided to declare

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the illegal mobilisation of funds as a fraudulent and unfair trade practice; the long term results
of these steps will only ensure their effectiveness. To ensure that FIIs continue to invest in India
and to channelize household savings into the capital market will be another challenge.
Moreover, SEBI is currently facing one of its biggest legal battles against two Sahara
companies regarding refund of around 24,000 crore rupees.

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 CONCLUSION

Reforms in the securities market, particularly establishment and empowerment of SEBI,

allocation of resources by market, screen based nation-wide trading, dematerialization and
electronic transfer of securities, availability of derivatives of securities, etc. have greatly
improved the regulatory framework and efficiency and safety of issue, trading clearing and
settlement of securities. However, efforts are on to improve working of the securities market
further. The main change, which has witnessed the Indian securities market, is that earlier
trading in both primary market and secondary market was done physically and is now replaced
by electronic systems available for trading. With an strengthening of the regulatory system and
introduction of various Acts has empowered the Indian securities market and therefore has
become a better option for investing the resources, we can also see that no of people investing
insecurities be it Mutual Funds, Derivatives, in Equity Market, in Debt Market is on increase
and will also further increase with more sophistication of technology and not to forget
legislation authorities protecting rights of investors. Security exchange board of India SEBI
has been playing an important role in regulating the business in stock exchanges and any other
securities markets and to protect the interests of investors. The emergence of the securities
market resulted as a major source of finance for trade and industry across India. A growing
number of companies are access in the securities market rather than depending on loans from
FIs/banks. Moreover the Indian securities market is contributing to Indian GDP growth
immensely.

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