Research Assignment

CORPORATE LAW - II

TOPIC

“FORMATION, POWER &

FUNCTION OF SEBI”

Submitted by- Submitted to-

MD AHMAR MATIN PROF. QAZI USMAN

B.A .LL.B (Hons.) Regular Faculty of law, JMI
7TH Semester, 4TH Year
Roll No. – 29

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 ACKNOWLEDGEMENT

I would like to express my deepest gratitude to all those who provided

me with the possibility to complete this assignment. A special thanks to
my teacher, Prof. Qazi Usman, whose contribution in providing
suggestions and encouragement, helped me coordinate this assignment.

Furthermore, I would also like to acknowledge with much appreciation

the crucial role of the staff of Jamia Millia Islamia, who gave me the
permission to use all the necessary equipment and the required
materials to complete this assignment.

Special thanks goes to my classmates and friends who helped me

assemble the parts and gave their valuable suggestions.

Md Ahmar Matin!

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 TABLE OF CONTENT

Introduction……………………………………………………………..…………………………4

History of SEBI (securities and exchange board of India)………………..……...………….……4

Reasons for establishment of SEBI (securities and exchange board of India)……………………5

Formation of SEBI (securities and exchange board of India)…………….…………….…………6

Composition of SEBI (securities and exchange board of India)………….….……..………..……6

Purpose and role of SEBI (securities and exchange board of India)………...…………..….……6

Objectives of SEBI (securities and exchange board of India)……….……………….…..….……7

Functions of SEBI (securities and exchange board of India)……………………..……...……7-10

Powers of SEBI (securities and exchange board of India)………...………….…..…………11-15

Conclusion……………………………………………………………………………………….16

Bibliography……………………………..………………………………………………………17

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INTRODUCTION

The Securities and Exchange Board of India (SEBI) was established by the Government of India
in 12 April 1988 to ensure the smooth functioning of capital market. The SEBI got legal teeth
through an ordinance issued on 30th January 1992 to protect the interest, money and confidence
of investors. The ordinance has wide ranging powers on the SEBI, including the authority to
prohibit ‘insider trading’ and regulate substantial acquisition of shares and takeover of business.

The SEBI Act (1992) as amended on March 25, 1995 by the Securities Laws Act 1995 has
empowered SEBI to register and regulate new intermediaries in the capital market such as
custodians, depositories, venture capital funds, credit rating agencies and foreign institutional
investors. Additional powers were given to SEBI to prescribe regulations related to issue of
capital and transfer of securities. SEBI’s independence was strengthened by allowing it to issue
regulations and file suits without the prior approval of the Central Government. SEBI has also
been empowered to impose monetary penalties for a wide range of violations, and accordingly
the SEBI Act provides for adjudication and empowers SEBI to appoint adjudicating officers.

The SEBI has framed regulations under the SEBI Act and the Depositories Act for registration
and regulation of all market intermediaries, for prevention of unfair trade practices, and insider
trading. As everyone could know that these i.e. the Government and the SEBI issue notifications,
guidelines and circulars which need to be complied with by market participants. All the rules and
regulations are administered by the SEBI.

History of SEBI (Securities and Exchange Board of India)

Securities and exchange Board of India (SEBI) was first established in 1988 as a non-statutory
body for regulating the securities market. It became an autonomous body on 12 April 1992 and
was accorded statutory powers with the passing of the SEBI Act 1992 by the Indian Parliament.
Soon SEBI was constituted as the regulator of capital markets in India under a resolution of the
Government of India. SEBI has its headquarters at the business district of Bandra Kurla Complex

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in Mumbai, and has Northern, Eastern, Southern and Western Regional Offices in New Delhi,
Kolkata, Chennai and Ahmedabad respectively. It has opened local offices at Jaipur and
Bangalore and has also opened offices at Guwahati, Bhubaneshwar, Patna, Kochi and
Chandigarh in Financial Year 2013 - 2014.

Controller of Capital Issues was the regulatory authority before SEBI came into existence; it
derived authority from the Capital Issues (Control) Act, 1947.

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

• The chairman who is nominated by the Union Government of India.

• Two members, i.e., Officers from Union Finance Ministry.
• One member from the Reserve Bank of India.
• The remaining five members are nominated by the Union Government of India, out of
them at least three shall be whole-time members.

After the amendment of 1999, collective investment schemes were brought under SEBI except
nidhis, chit funds and cooperatives.

Reasons for Establishment of SEBI (Securities and Exchange Board of India)

With the growth in the dealings of stock markets, lot of malpractices also started in stock
markets such as price rigging, ‘unofficial premium on new issue, and delay in delivery of shares,
violation of rules and regulations of stock exchange and listing requirements. Due to these
malpractices the customers started losing confidence and faith in the stock exchange. So
government of India decided to set up an agency or regulatory body known as Securities
Exchange Board of India (SEBI).

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FORMATION OF SEBI (Securities and Exchange Board of India)

"The chairman of SEBI is elected by the Indian Parliament, one member from the Reserve Bank
of India, two officers from the Union Finance Ministry, and five members who get elected by the
Parliament along with the chairman”.
The SEBI Act entirely rules all the Stock Exchanges and the Securities Transactions done in
India. It has been set up a legal and self governing monitoring body with independent powers
and defined duties, to take care of both the development and regulation of the Indian Capital
market. The SEBI works under the guidance of Ministry of Finance.
The current Chairman of SEBI is Mr. Ajay Tyagi.

Composition of SEBI (Securities and Exchange Board of India)

All decisions taken by Securities and Exchange Board of India are collectively taken by its
Board that consists of a Chairman and eight other members. Moreover, Securities and Exchange
Board of India 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.

Purpose and Role of SEBI (Securities and Exchange Board of India)

SEBI was set up with the main purpose of keeping a check on malpractices and protect the
interest of investors. It was set up to meet the needs of three groups.

1. Issuers:
For issuers it provides a market place in which they can raise finance fairly and easily.

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2. Investors:
For investors it provides protection and supply of accurate and correct information.

3. Intermediaries:
For intermediaries it provides a competitive professional market.

Objectives of SEBI (Securities and Exchange Board of India)

The overall objectives of SEBI are to protect the interest of investors and to promote the
development of stock exchange and to regulate the activities of stock market. The objectives of
SEBI are:

1. To regulate the activities of stock exchange.

2. To protect the rights of investors and ensuring safety to their investment.

3. To prevent fraudulent and malpractices by having balance between self regulation of business
and its statutory regulations.

4. To regulate and develop a code of conduct for intermediaries such as brokers, underwriters,
etc.

Functions of SEBI (Securities and Exchange Board of India)

The Preamble of the Securities and Exchange Board of India describes the basic functions of the
Securities and Exchange Board of India 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”.
Securities and Exchange Board of India is a quasi-legislative, quasi-judicial and quasi-
executive body. It can draft regulations, conduct inquiries, pass rulings and impose
penalties.

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 Government has promulgated Securities Laws (Amendment) Second Ordinance, 2013 that
would amend the Securities and Exchange Board of India Act, the Securities Contracts
(Regulation) Act and the Depositories Act. With these amendments, Securities and
Exchange Board of India 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
Securities and Exchange Board of India 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.
The SEBI performs functions to meet its objectives. To meet three objectives SEBI
has three important functions. These are:

i. Protective functions

ii. Developmental functions

iii. Regulatory functions.

1. Protective Functions:
As protective functions SEBI performs following functions:
(i) It Checks Price Rigging: These functions are performed by SEBI to protect the
interest of investor and provide safety of investment.

Price rigging refers to manipulating the prices of securities with the main objective of
inflating or depressing the market price of securities. SEBI prohibits such practice
because this can defraud and cheat the investors.

(ii) It Prohibits Insider trading:

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

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 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.

(iii) 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.

(iv) SEBI undertakes steps to educate investors so that they are able to evaluate the
securities of various companies and select the most profitable securities.
(v) SEBI promotes fair practices and code of conduct in security market by taking
following steps:
(a) SEBI has issued guidelines to protect the interest of debenture holders wherein
companies cannot change terms in midterm.

(b) SEBI is empowered to investigate cases of insider trading and has provisions for stiff
fine and imprisonment.

(c) SEBI has stopped the practice of making preferential allotment of shares unrelated to
market prices.

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

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

(ii) SEBI tries to promote activities of stock exchange by adopting flexible and adoptable
approach in following way:

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 (a) SEBI has permitted internet trading through registered stock brokers.

(b) SEBI has made underwriting optional to reduce the cost of issue.

(c) Even initial public offer of primary market is permitted through stock exchange.

3. Regulatory Functions:

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

(i) SEBI has framed rules and regulations and a code of conduct to regulate the
intermediaries such as merchant bankers, brokers, underwriters, etc.

(ii) These intermediaries have been brought under the regulatory purview and private
placement has been made more restrictive.

(iii) 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.

(iv) SEBI registers and regulates the working of mutual funds etc.

(v) SEBI regulates takeover of the companies.

(vi) SEBI conducts inquiries and audit of stock exchanges.

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POWERS OF SEBI (Securities and Exchange Board of India)

1. 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.

2. 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.

3. 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.

4. Power to regulate insider trading

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

5. 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.

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6. Power 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.

Changes Introduced By SEBI in capital market

1. T+2 trading settlement system.

2. De-materialization of share certificates (1999).
3. Banned entry loads for mutual fund schemes in 2009.
4. The task of giving approvals to FII registrations was handed over to SEBI in 2003. In order
to discourage FII investments made through P-notes, Securities and Exchange Board of
India has imposed sufficient checks and balances to avoid the flow of black money into the
Indian markets.
5. Strict vigil on usage of IPO 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.
6. In 1996-97, Securities and Exchange Board of India 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 derivatives market nationwide, Securities
and Exchange Board of India introduced an index based circuit breaker system applicable at
10%, 15% and 20% movement either way.
7. Securities and Exchange Board of India 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.
8. NB : International Organisation of Securities Commissions- IOSCO under its Financial
Sector Assessment Program – FSAP acknowledged that the comprehensive risk
management framework prescribed by SEBI is one of the pillars of the Indian securities
settlement system.

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 9. Securities and Exchange Board of India distinguishes itself from other regulators in India as
it is a financially independent regulator with its own sources of revenue.

Section 15K of SEBI Act, 1992 empowers the Central Government to set up
one or more Tribunals, for the purpose making appeals against the orders of
SEBI and its adjudicating officers. These tribunals will be known as Securities
Appellate Tribunal (SAT). In exercise of the power conferred, the Central
Government has set up one Tribunal at Mumbai.

COMPOSITION OF SAT (Securities Appellate Tribunal)

SAT shall consist of the following:

A) One Presiding officer

B) Two other members

Presiding Officer

The Presiding Officer of SAT shall be appointed by the Central Government in consultation with
the Chief Justice of India or his nominee.

The person to be appointed as the Presiding Officer must;

• Be a sitting or retired Judge of the Supreme Court ; or

• Be a sitting or retired Chief Justice of a High Court ; or
• Be a sitting or retired Judge of a High Court, who has completed atleast 7 years of
service.

The person so appointed shall hold office, earlier of the two for a period of 5 years ; or up to the
age of 68 years

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Members

The two members of SAT shall be appointed by the Central Government.

The person to be appointed must;

A person of ability, integrity and standing who has shown capacity in dealing with problems
relating to securities market.

Have qualification and experience of Corporate Law, Securities Law, Finance, Economics or
Accountancy.

• Person shall hold office, earlier of the two,

• For a period of 5 years ; or
• Upto age of 62 years.

Appeal to SAT [Sec. 15T]

Who can make appeal?

• Any person aggrieved,

By an order of the SEBI; or

By an order made by an adjudicating office may prefer an appeal to SAT.

Exceptions: – No appeal shall lie to SAT from an order made with the consent of the parties.

Time Limit: – The appeal to SAT shall be filed within a period of 45 days from the date of
receiving the copy of the order of SEBI or adjudicating officer, as the case may be. However,
SAT may entertain an appeal after the expiry of 45 days, if it is satisfied that there was sufficient
cause for not filing it within that period.

SAT shall send copy of every order made by it to the following person:

• SEBI
• Concerned Adjudicating Officer
• Parities to Appeal.

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Appeal against the Orders of SAT [Sec 15Z]
Any person aggrieved by any decision or order of SAT may file an appeal to the Supreme Court.
It may be noted that the appeal can be made only on any Question of Law.

The appeal shall be filed within 60 days from the date of receiving a copy of the decision or
order of SAT. However, the Supreme Court may allow a further period of 60 days for making an
appeal, if it is satisfied that the applicant was prevented by sufficient cause from filing the appeal
within the first 60 days.

Powers of SAT [Sec 15U]

The SAT shall have, for the purpose of discharging their functions under SEBI Act, 1992, the
same powers as are vested in a Civil Court under the CPC, 1908, while trying a suit, in respect of
the following matters, namely:

• Summoning and enforcing the attendance of any person and examining him on oath.
• Requiring the discovery and production of documents.
• Receiving evidence on affidavits.
• Issuing commissions for the examination of witness or documents.
• Reviewing its decisions.
• Dismissing an application for default or deciding it ex parte.
• Setting aside any order of dismissal of any application for default or any order passed by
it ex parte
• Any other matter which may be prescribed.

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 CONCLUSION
SEBI through its rules and regulations and directions, has played a major role in the development
and strengthening of the securities market. "More than three fourths of the sample investors feel
happy and good about the capital market regulation in the country.

They have firm belief in the SEBI for stopping the occurrence of scams. The main motive is to
form such an environment which simplifies efficient mobilization and distribution of resources
through the securities market. This includes rules, regulations, guidelines policy framework,
practices and infrastructure to meet the requirements of three groups which mainly set up the
market, i.e. issuers of securities, to investors and the market mediators.

The SEBI is a regulatory body which is twenty three years old and the capital market system is
more than 103 years old. This matured capital market system requires monitoring rather than
Over-regulation. There should be cross-border cooperation among all sorts’ regulators and
between regulators and profession. The SEBI should supervise this capital market system in such
a manner that all sub-systems become self-regulatory organizations (SROs) gradually. The SEBI
should lay down the boundaries within which these sub-systems should operate. Moreover, the
fundamental infrastructure for regulation, disclosure, surveillance and trading are all in place.

Hence, the SEBI should stop being pre-occupied with day-to-day regulations and become more
of a visionary. Securities Exchange Board of India has enjoyed success as a regulator by pushing
systematic reforms aggressively and respectively.

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 BIBLIOGRAPHY
WEBSITES REFFERED

• http://www.yourarticlelibrary.com/education/SEBI-the-purpose-objective-and-functions-
of-SEBI/8762/
• http://kalyan-city.blogspot.in/2010/11/powers-of-SEBI-securities-and-exchange.html
• http://taxguru.in/SEBI/securities-appellate-tribunal-sat-insight.html

BOOKS REFERRED

• Dr.Avtar Singh, Business Laws, Eastern Book Company, (2017).

• DhallVinod, Competition Law Today; Concepts, Issues, and Law in Practice‘, Oxford
University Press, (2007).
• Ramappa T. Competition Law in India- Policy, issues and Developments‘; Oxford
University Press,(2006).
• RatanLal and DheerajLal, Commentary on Law of Evidence, 23rd enlarged edition; Lexis
Nexis Butter Worths Wadhwa, Nagpur(2010).

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