The SEBI Act, 1992 was enacted to empower SEBI with statutory powers for (a) protecting the

interests of investors in securities, (b) promoting the development of the securities market, and
(c) regulating the securities market. As per the 1992 Act, the SEBI has been empowered to
impose penanlty for fraudulents act done by any person during the course of trading in securities.

However, that was not the case initially. In 1992, Harshad Mehta a stock broker was arrested for
committing a series of bank fraud by manipulating the stock market. The scam resulted in
highlighting the plight of the security trading system in India. To deal with the situation, the
SEBI Act was enacted in 1992. Furthermore, RBI also set up a high-level committee in 1992,
with Mr. R. Janakiraman as its chairman. The Committee in its final report highlighted various
irregularities in the security transaction and made certain recommendations. However, despite
the recommendation to prevent scam in the security market, another major scam occurred in
2001.

Ever since then various amendments had been made to the SEBI Act, 1992 to statutorily
empower SEBI to take actions against any person committing the fraud. The role of SEBI in
tackling frauds and scams has been highlighted as follows:

I. Section 12-A of SEBI Act, 1992 inserted by an amendment in 2002 prohibits acts which
are manipulative and deceptive and nature and prohibits any person from doing the
following act directly or indirectly:
i. To use or employ any manipluative or deceptive technique in connection with the
issue, purchase or sale of any securities;
ii. To employ any device, scheme or artifice with the aim to defraud in connection
with the security market:
iii. To engage in insider trading;
iv. To deal in securities in a manner detrimental to the provisions of the act and
regulation made by SEBI from time to time.
II. Section 15G empowers SEBI to impose penalty on any insider who
i. 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body corporate listed on any stock exchange on the basis of any unpublished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
 ii. communicates any unpublished price-sensitive information to any person, with or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
iii. counsels, or procures for any other person to deal in any securities of any body
corporate on the basis of unpublished price-sensitive information,
III. Section 15HA empowers SEBI to impose penalty on any person involved in fradulent
and unfair trade practices related to securities
IV. Section 15I empowers SEBI to adjudicate in cases pertaining to Chapter VIA of the SEBI
Act, 1992
V. In addition to the power of imposing penalty in cases of frauds and scams, SEBI is also
empowered to initiate investigations if it has reasons to believe that act in question is
detrimental to the provisions of the Act of 1992 or any person has violated the proivisions
of the said act.

In conclusion, it is stated that the frauds and scams raises immediate concerns in the regulatory
system. This leads to immediate reforms in the powers and functions of the regulatory bodies.
The cases of Harshad Mehta and Ketan Parekh led to significant changes in the regulatory
framework and has laid down the foundation for SEBI to an institution which regulates the entire
security market in India.