1|Page no.

PROJECT REPORT
ON BUSINESS LAW

SECURITIES AND EXCHANGE

BOARD OF INDIA ACT 1992
(S.E.B.I. ACT 1992)

SUBMITTED BY: SUBMITTED TO:

HEMAN LAMBA PROF AMITA VERMA
ROLL NO. 291/19 PROFFESOR AT UILS,PU.
SECTION E
2|Page no.

ACKNOWLEDGEMENT

I have taken great efforts with this project. However, it would not have
been possible without the kind support of many individuals. First of all,
I am highly thankful to Professor Amita Verma for giving me this
opportunity to prove my mettle and who has always been very sweet and
supportive towards all our endeavors.

Next, I want to thank my parents for always being supportive in all my

decisions and letting me work as I please without being overbearing and
providing me with support when I require.

-Heman Lamba
3|Page no.

TABLE OF CONTENTS

S. NO. TOPIC PAGE NO.

1 INTRODUCTION 4

2 SECTION 3 TO 9 & 11 5-11

3 CASES 12-14

4 CONCLUSION 15

5 BIBLIOGRAPHY 16
4|Page no.

INTRODUCTION

The first statutory regulatory body that the Government of India set up post the reforms of 1991 was
the Securities and Exchange Board of India (SEBI). SEBI has been established with two objectives of
protecting the interest of investors and to promote the development of and to regulate the Securities
Market. Since its establishment in 1992 lot of initiatives have been taken to protect the interests of
Indian investors. SEBI under the SEBI Act, 1992 has been empowered to frame subordinate legislation
and to investigate wrong doing, impose relevant penalties and to conduct search and seizure
operations.

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. Its regulatory jurisdiction extends over corporates in the issuance of capital and
transfer of securities, in addition to all intermediaries and persons associated with securities market.
SEBI – can specify the matters to be disclosed and the standards of disclosure required for the
protection of investors in respect of issues; – can issue directions to all intermediaries and other persons
associated with the securities market in the interest of investors or of orderly development for securities
market; and – can conduct enquiries, audits and inspection of all concerned and adjudicate offences
under the Act. In short, it has been given necessary autonomy and authority to regulate and develop an
orderly securities market.
5|Page no.

SECTION 3
Establishment and incorporation of Board of security exchange of India

Section 3 of Security exchange Board of India,1992 lays down the establishment of the board and the
board may be known as the security exchange board of India.The Board may hace power subject to the
provisions of the 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.Accordin to Section 3 the head office of the board
shall be in Bombay and the board may have the power to establish offices at any place in India.

SECTION 4
Composition or Management of the Board

• Chairman.
• Two members from amongst the officials of the Ministry of the Central Government
dealing with Finance and administration of the Companies Act, 2013.
• One member from amongst the officials of the RBI.
• Five other members of whom at least 3 shall be the whole -time members to be
appointed by the central Government.

Current Board members

6|Page no.

Ms. Madhabi Puri Buch Chairperson

Shri. S. K. Mohanty
Whole-Time Member

Shri Ananta Barua

Whole-Time Member

Shri. Ashwani Bhatia

Whole-Time Member

Shri Ananth Narayan Gopalakrishnan

Whole-Time Member

Shri Ajay Seth Part-Time Member

Shri Rajesh Verma Part-Time Member

Shri M. Rajeshwar Rao Part-Time Member

7|Page no.

SECTION 5
Term of office and conditions of service of Chairman and members of the Board

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 sub-section (1) of
section 4, at any time before the expiry of the period prescribed under subsection (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

SECTION 6
Removal of member from office.
• If any member is or at any time has been, adjudicated as insolvent
• If any member is of unsound mind and stands so declared by a competent court
• If any member has been convicted of an offence which, in the opinion of the Central Government,
involves moral turpitude
• If any member has, in the opinion of the Central Government, so abused his position as to render his
continuation in office detrimental to the public interest. (No member shall be removed under this
clause unless he has been given a reasonable opportunity of being heard in the matter).

SECTION 7
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 shall 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.

SECTION 7A Member not to participate in meetings in certain cases

8|Page no.

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 meeting 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.

SECTION 8
Vacancies, etc., not to invalidate proceedings of Board.

No act or proceeding 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.

SECTION 9
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 functions 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 as may be determined by regulations.

SECTION 11
Powers and Functions of the Board

1. Protection of interests of investors in securities

2. Promoting the development of the securities market by regulating it as it thinks necessary
3. Regulating the business in stock exchanges and any other securities markets
4. Registering and regulating the working of stockbrokers, sub-brokers, share transfer agents, bankers
to an issue, trustees of trust deeds, registrars to an issue, merchant bankers, underwriters, portfolio
9|Page no.

managers, investment advisers and such other intermediaries who may be associated with securities
markets in any manner
5. Registering and regulating the working of the depositories, participants, custodians of securities,
foreign institutional investors, credit rating agencies and such other intermediaries as the Board
may, by notification, specify in this behalf
6. Registering and regulating the working of venture capital funds and collective investment schemes,
including mutual funds
7. Promoting and regulating self-regulatory organizations
8. Prohibiting fraudulent and unfair trade practices relating to securities markets
9. Promoting investors’ education and training of intermediaries of securities markets
10. Prohibiting insider trading in securities
11. Regulating substantial acquisition of shares and take over of companies
12. Calling for information from, undertaking inspection, conducting inquiries and audits of the stock
exchanges, mutual funds, other persons associated with the securities market, intermediaries and
self-regulatory organisations in the securities market
13. Calling for information and records from any person including any bank or any other authority or
board or corporation established or constituted by or under any Central or State Act which, in the
opinion of the Board, shall be relevant to any investigation or inquiry by the Board in respect of any
transaction in securities
14. Calling for information from, or furnishing information to, other authorities, whether in India or
outside India, having functions similar to those of the Board, in the matters relating to the
prevention or detection of violations in respect of securities laws, subject to the provisions of other
laws for the time being in force in this regard
15. Performing such functions and exercising such powers under the provisions of the Securities
Contracts (Regulation) Act, 1956, as may be delegated to it by the Central Government
16. Levying fees or other charges for carrying out the purposes of this section
17. Conducting research for the above purposes
18. Calling from or furnishing to any such agencies, as may be specified by the Board, such information
as may be considered necessary by it for the efficient discharge of its functions
19. Undertake inspection of any book, register, record or other document of any listed public company
or a public company who is not an intermediary which intends to get its securities listed on any
recognised stock exchange
20. The discovery and production of books of accounts and other documents, at such place and such
time as may be specified by the Board
21. Summoning and enforcing the attendance of persons and examining them on oath
22. Inspection of any books, registers and other documents of any person or company
23. Issuing commissions for the examination of witnesses or documents
24. Suspend the trading of any security in a recognised stock exchange
25. Restrain persons from accessing the securities market and prohibit any person associated
with securities market to buy, sell or deal in securities
26. Suspend any office-bearer of any stock exchange or self-regulatory organisation from
holding such position
27. Impound and retain the proceeds or securities in respect of any transaction which is under
investigation
28. Attach, for a period not exceeding ninety days, bank accounts or other property of any intermediary
or any person associated with the securities market in any manner involved in violation of any of the
provisions of this Act, or the rules or regulations
10 | P a g e n o .

29. Direct any intermediary or any person associated with the securities market in any manner not to
dispose of or alienate an asset forming part of any transaction which is under investigation
30. Regulate or prohibit the issue of prospectus, offer document or advertisement soliciting money for
issue of securities
31. Power to issue directions and levy penalty
32. Power to conduct investigation
33. Power to initiate cease and desist proceedings
34. Power to issue certificate of registration and impose conditions therein
35. Power to order the suspension or cancellation of certificate of registration
36. Performing such other functions as may be prescribed.

SEBI to regulate or prohibit issue of prospectus, offer document or

advertisement soliciting money for issue of securities [Section 11A]
For the protection of investors the SEBI may specify by regulations –
⚫ Matters relating to issue of capital, transfer of securities and other incidental matters.
⚫ Manner in which such matters shall be disclosed by the companies.
⚫ SEBI may by issuing general or special orders –
⚫ Prohibit any company from issuing prospectus, any offer document, or
advertisement soliciting money from the public for the issue of securities.
⚫ Specify the conditions subject to which the prospectus, such offer document or
advertisement, if not prohibited, may be issued.
⚫ SEBI may also specify the requirements for listing and transfer of securities and other
incidental matters incidental.

Power to issue directions and levy penalty [Section 11B]

⚫ SEBI is empowered to issue directions for the following reasons:
⚫ In the interest of investors.
⚫ Orderly development of securities market.
⚫ To prevent the affairs of any intermediary or stock brokers, sub-brokers, share transfer
agents being conducted in a manner detrimental to the interests of investors or securities
market.
⚫ To secure the proper management of any such intermediary or person.
⚫ Such directions can be issued to:
⚫ (a) Any stock brokers, sub-brokers, share transfer agents or person associated with the
securities market.
11 | P a g e n o .

⚫ (b) Any company in respect of matters relating to issue of capital, transfer of securities
and other incidental matter appropriate in the interests of investors in securities and the
securities market.
⚫ Explanation: Power to issue directions shall include and always be deemed to have been
included the power:
⚫

⚫ To direct any person, who made profit or averte d loss by indulging in any transaction or
activity in contravention of the provisions of the Act or regulations made there under,
⚫ To disgorge an amount equivalent to the wrongful gain made or loss averted by such
contravention.

Investigation [Section 11C]

The Board is empowered to direct any person by order in writing to investigate the affairs of any
intermediary or persons associated with the securities market and to report it to the Board. The
conditions under which such investigation can be initiated are-
1. If the transactions in securities are being dealt within a manner detrimental to the investors or the
securities market
2. If any intermediary or any person associated with the securities market has violated any of the
provisions of this Act or rules or regulations made or directions issued by the Board.

Cease and desist proceedings [Section 11D]

⚫ After making inquiry, SEBI can issue cease and desist order to any person who has violated
or is likely to violate any provisions of the Act or any ru les or regulations.
⚫ In case of listed public company or a public company which intends to get its securities
listed on any recognised stock exchange, such order can be passed only if such company
has indulged in insider trading or market manipulation.
12 | P a g e n o .

CASES

Hindustan Lever Limited v. SEBI1

The facts of the case concerned the purchase by HLL of 8 lakh shares of BBLIL from the Unit Trust of
India (UTI) on March 25, 1996. This purchase was made barely two weeks prior to a public
announcement for a proposed merger of HLL with BBLIL.

Upon investigation, SEBI by its Order dated March 11, 1998 (Order) found that, at the time of the
purchase of shares of BBLIL from UTI, HLL was an "insider" as under Section 2(e) of the 1992
Regulations, the relevant extract of which describes an insider as any person who:

i. is or was connected with the company or is deemed to have been connected with the company
and is reasonably expected to have access by virtue of such connection to unpublished price
sensitive information in respect of securities of the company, or
ii. has received or has had access to such unpublished price sensitive information."

SEBI held that, since, HLL and BBLIL were subsidiaries of the same London based Unilever, and were
effectively under the same management, HLL and its directors had prior knowledge of the merger. Thus
HLL was covered under the definition of an insider as above defined.

SEBI also held that HLL was in possession of UPSI as defined under Section 2(k) of the 1992 Regulations
which includes any information in relation to amalgamation, merges and takeovers that "is not generally
known or published by such company for general information, but which if published or known, is likely
to materially affect the price of securities of that company in the market". As per SEBI, the fact that the
information about the merger was available with HLL was enough to satisfy the requirement of Section
2(k) above.

An appeal was filed by HLL against the said SEBI Order before the Securities Appellate Authority. On the
question of whether HLL could be termed as an insider, the Appellate Authority agreed with the SEBI
Order to hold that, the information available with HLL in relation to the merger was beyond merely self-
generated information, i.e., information arising out of its own decision making. Further, with respect to
the merger, the Appellate Authority noted that the existence of directors common to both HLL and
BBLIL, and a common parent company in Unilever meant that they (i.e., HLL and BBLIL) were in effect
under the same management. Consequently, HLL could be termed as an insider under the 1992
Regulations and it could reasonably be presumed that HLL was privy to decision making on the merger
issue in the BBLIL board.

1 (1998) 18 SCL 311 MOF

13 | P a g e n o .

On the question of whether the information available with HLL constituted UPSI, the Appellate Authority
agreed with the contentions of HLL that, for information to be considered as UPSI, it must meet the dual
requirements envisaged under Section 2(k) of the 1992 Regulations, i.e.:

1. The information must not be generally known or published by the company; and
2. If published or known, is likely to materially affect the prices of securities of that company in the
market. [...Emphasis supplied]

The Appellate Authority held that for information to be generally known, it is not required to be
confirmed or authenticated by the company as it would otherwise fall under the category of information
"published by the company". The Appellate Authority appreciated the evidence produced by HLL,
including various news articles covering the merger, and concluded that the information of the merger
was generally widely known to the public, and thus failed the first test to qualify as UPSI as per the
abovementioned Section 2(k) of the 1992 Regulations.

HLL also argued that, the information of the merger of two healthy, profit – making companies is per
se not price sensitive, as price sensitivity would arise in case of merger between a strong company and a
weak company, which impacts the share price of the companies. The Appellate Authority however
noted that even in the merger of two healthy companies there are synergistic possibilities which could
lead to price sensitivity for either company. Thus, the Appellate Authority agreed with SEBI's conclusion
that information of the merger was price sensitive (though not 'unpublished'). The matter is currently
pending before the Supreme Court.

Harshad S. Mehta vs Central Bureau Of Investigation 2

Harshad Mehta and his associates and a few other brokers siphoned off funds from interbank
transactions and bought shares across sectors, resulting in a stupendous rise in Sensex. Here’s how they
did it! (Explained loosely)

A The main “tool” in the hands of wily brokers those days was striking ready forward deals (RFD)
between banks. An RFD is a secured short term 15-day-loan from one bank to another. The lending is
done against government securities. The borrowing bank actually sells the securities to the lending bank
and buys them back at tenure, at a slightly higher price.

B The normal settlement process in G-Secs is that the transacting banks make payments to each other
and effect delivery of securities. In the scam, the delivery of securities and payments were made
through a set of brokers. Here, only the broker would know the parties on either side.

C The brokers perfected the method and started trading on their own account. They pretended to be
undertaking the transactions on behalf of a bank to maintain a facade of legality.

D The brokers also used bank receipts (BRs) in lieu of securities that were traded. So in real terms,

2 1992 (24) DRJ 392, ILR 1993 Delhi 274

14 | P a g e n o .

securities did not change hands, but only BRs did. ABR is also treated as a receipt for money received
from the buyer of securities.

E The brokers colluded with a couple of banks which issued fake BRs – ones without any security
backing. Mehta collected fake BRs from these banks and passed on to other banks which paid him
money under assumption that they were lending against securities. This money was then diverted to
stocks. The shares were sold at profits (thanks to pumped up markets) and the BR retired when it was
time to return money to the bank. Mehta struck such deals across banks and rolled the money at every
payout-level.
15 | P a g e n o .

CONCLUSION
SEBI strongly believes that the investors are the soul of the securities market and they need to protect
the interests of investors for the development of the capital market. SEBI deals with all the policies and
regulations of the market. SEBI also signed a contract with the International Organization of Securities
Commission and allowed its members to maintain a regular check for cross border misconduct in their
respective jurisdictions. This case is considered as the landmark judgment in India’s Corporate
Landscape as it helped in preventing war between MCA and SEBI.
16 | P a g e n o .

BIBLIOGRAPHY
BOOKS REFERRED:

• Security Laws and Capital Market by CS Anoop Jain

• Security Laws by Taxmann

WEBSITES:

• www.sebi.gov.in
• www.wikipedia.in
• www.ipleaders.in
• https://www.bing.com/ck/a?!&&p=40ba4d4ddd83821bJmltdHM9MTY2Nzg2NTYwMCZ
pZ3VpZD0yYzk0NjNmZC03MWE4LTYzZWQtMGE4NC03MzIzNzBhZTYyNTgmaW5zaWQ9
NTQ2Mw&ptn=3&hsh=3&fclid=2c9463fd-71a8-63ed-0a84-
732370ae6258&psq=sebi+act+conclusion&u=a1aHR0cHM6Ly9ibG9nLmlwbGVhZGVycy5
pbi9mZWF0dXJlcy1vZi1zZWJpLyM6fjp0ZXh0PUNvbmNsdXNpb24lMjBJbnRyb2R1Y3Rpb2
4lMjBTRUJJJTIwaXMlMjBhbHNvJTIwa25vd24lMjBhcyUyMHRoZSxub24tc3RhdHV0b3J5JT
IwYm9keSUyMGVzdGFibGlzaGVkJTIwdG8lMjByZWd1bGF0ZSUyMHRoZSUyMHNlY3VyaX
RpZXMlMjBtYXJrZXQu&ntb=1
• https://www.bing.com/ck/a?!&&p=312badbdd4c2ba69JmltdHM9MTY2Nzg2NTYwMCZp
Z3VpZD0yYzk0NjNmZC03MWE4LTYzZWQtMGE4NC03MzIzNzBhZTYyNTgmaW5zaWQ9N
TE5NQ&ptn=3&hsh=3&fclid=2c9463fd-71a8-63ed-0a84-
732370ae6258&psq=sebi+act+conclusion&u=a1aHR0cHM6Ly93d3cuc2ViaS5nb3YuaW4
vbGVnYWwvYWN0cy9qYW4tMTk5Mi9zZWN1cml0aWVzLWFuZC1leGNoYW5nZS1ib2FyZ
C1vZi1pbmRpYS1hY3QtMTk5Mi1hcy1hbWVuZGVkLWJ5LXRoZS1maW5hbmNlLWFjdC0y
MDIxLTEzLW9mLTIwMjEtdy1lLWYtYXByaWwtMS0yMDIxLV8zLmh0bWw&ntb=1