Page 1 of 14

Business Laws

SEBI : Powers & Functions

Submitted to: Dr. Amita Verma Submitted by: Ritesh Tewari

Professor Semester 7

UILS Section E

Panjab University B.COM.LLB.

Chandigarh
 Page 2 of 14

Acknowledgement
The detailed project would not have been possible without the kind support and help of many
individuals. I would like to thank them all.

I am highly indebted to Dr.Amita for providing her invaluable guidance, comments and
suggestions throughout the project.

I would also like to thank my parents and friends for bearing with me throughout the project.

RITESH TEWARI
 Page 3 of 14

Table of Contents
Acknowledgement....................................................................................2
Introduction...............................................................................................4
Structure of SEBI......................................................................................5
Power & Functions of SEBI.....................................................................5
Cases.......................................................................................................10
CONCLUSION.......................................................................................13
BIBLIOGRAPHY...................................................................................14
 Page 4 of 14

Introduction
 Capital markets started to gain popularity among Indians at the end of the 1970s and
early in the 1980s. Numerous unethical acts such as unofficial self-styled merchant
bankers, unauthorized private placements, price manipulation, disregard for the
provisions of the Companies Act, disregard for the laws and regulations of stock
exchanges, delay in the delivery of shares, etc. began to be practiced.

 As a result of these unethical acts, investors began to lose faith in the stock market. The
establishment of an authority to control operations and lessen these malpractices was
judged to be urgently necessary by the government. Because of this, the government
decided to create SEBI.

 In 1988, 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 body) in the year 1992 with the passing of Security
and Exchange Board of India Act, 1992 on 30th January 1992. In place of government
controller, a statutory and autonomous regulatory board with defined responsibilities, to
cover both development and regulation of the market with independent powers was set
up.

 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).

 Its regulatory jurisdiction extends over corporate in the issuance of capital and transfer of
securities, in addition to all intermediaries and persons associated with 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,

 Page 5 of 14

(b) Promoting the development of the securities market, and

(c) Regulating the securities market.

Structure of SEBI
The management structure of SEBI consists of the following members:

o The chairman of SEBI is nominated by the Union Government of India.

o Two officers from the Union Finance Ministry will be a part of this structure.
o One member will be appointed from the Reserve Bank of India.
o Five other members, out of whom three should be whole time members, will be
appointed by the Central Government of India.

SEBI has a corporate framework comprising of various departments each managed by a

department head. There are about 20 departments under SEBI.

Some of these departments are corporation finance, economic and policy analysis, debt and
hybrid securities, enforcement, human resources, investment management, commodity
derivatives market regulation, legal affairs, and more.

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.

Power & Functions of SEBI

Chapter IV of the SEBI Act, 1992 deals with the power and functions of SEBI.

Functions of SEBI

 Section 11(1) of the Act states that it shall be the duty of SEBI to protect the interests of
the investors in securities and to promote the development of, and to regulate the
securities markets by such measures as it thinks fit.
 Page 6 of 14

 Section 11(2) contains the list of measures SEBI can take (Regulatory functions):

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

 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.

 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;

 Developmental Functions

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:-
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.

 Protective Function

As protective functions SEBI performs following functions:-

 Page 7 of 14

 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.

POWERS OF SEBI

 Quasi-Judicial Powers [ Section 11(3) ]

Section 11(3) of SEBI Act provides that for carrying out the duties assigned to it under
the Act, SEBI has been vested with the same powers as are available to a Civil Court
under the Code of Civil Procedure, 1908 for trying a suit in respect of the following
matters:
(i) the discovery and production of books of account and other documents at such place
and such time indicated by SEBI.
(ii) summoning and enforcing the attendance of persons and examining them on oath.
(iii) inspection of any books, registers and other documents of any person listed in section
12 of the Act.
(iv) inspection of any book or register or other document or record of any listed company
or a public company which intends to get its securities listed on any recognized stock
exchange.
(v) issuing commissions for the examination of witnesses or documents.
 Page 8 of 14

 To Regulate or Prohibit Issue of Prospectus, Offer Document or Advertisement

Soliciting Money for Issue of Securities [Section 11A(1)]

Section 11A (1) of SEBI Act, 1992 provides that without prejudice to the provisions of
the Companies Act, 2013, SEBI may, for the protection of investors, –

(a) specify, by regulations –

(i) the matters relating to issue of capital, transfer of securities and other matters
incidental thereto; and
(ii) the manner in which such matters shall be disclosed by the companies;

(b) by general or special orders –

(i) prohibit any company from issuing prospectus, any offer document, or advertisement
soliciting money from the public for the issue of securities;
(ii) specify the conditions subject to which the prospectus, such offer document or
advertisement, if not prohibited, may be issued.

Without prejudice to the provisions of section 21 of the Securities Contracts (Regulation)

Act, 1956, SEBI may specify the requirements for listing and transfer of securities and
other matters incidental thereto.

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

SEBI is empowered to issue directions for the following reasons:

o In the interest of investors.
o For Orderly development of securities market.
o 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.
o 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
 Page 9 of 14

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.

The power to issue directions under this section shall include and always be deemed
to have been included the power to direct any person, who made profit or averted loss
by indulging in any transaction or activity in contravention of the provisions of this
Act or regulations made thereunder, to disgorge an amount equivalent to the wrongful
gain made or loss averted by such contravention.

 Investigation Power ( 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 with in 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]

o 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 rules or
regulations.
o 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.

 To Regulate Collective Investment Schemes [Section 11AA ]

Section 11AA (1) of the SEBI Act, provides that any scheme or arrangement which
satisfies the conditions referred to in sub-section (2) shall be a collective investment
scheme.
 Page 10 of 14

CASES
 SEBI v. Ajay Agarwal1

Securities and Exchange Board of India (Appellant) initiated investigations against

Trident Steel (company) on receipt of a complaint by a BSE member relating to public
issue of the company. The complaint alleged misstatement of facts by the Company in
the prospectus issued in furtherance of the proposed public issue. Mr. Ajay Agarwal
(Respondent) was the joint managing director of the company. In the course of
investigation, it appeared that the company’s directors had pledged their personal holding
of 750,000 shares with Bank of Baroda, and a director and Dowell Leasing and Financing
Ltd had given non-disposal undertaking to Bank of Baroda, lead manager to the issue.
This was not disclosed in the prospectus of the company. This appeared to be a violation
of SEBI guidelines on disclosure for investor protection. Thus, an important aspect of the
capital structure of the company was not disclosed in the prospectus as a result of which
investors were misguided.

On 22.12.99 SEBI issued a show cause notice to the Respondent asking him to show
cause why directions under Section 11−B of the Securities and Exchange Board of India
Act, 1992 restraining the Company and its directors from accessing the capital market for
a suitable period should not be issued. The Respondent filed his reply and was also given
an opportunity of personal hearing. After hearing the replies of persons concerned to the
show cause notice, on March 31, 2004 the Chairman of the SEBI passed an order, under
Section 4(3) read with Section 11 and Section 11B of the Act, restraining the Respondent
from associating with any corporate body in accessing the securities market and
prohibiting him from buying, selling or dealing in securities for a period of five years.
The order was contested in the appellate body, i.e., the Securities Appellate Tribunal
(SAT).

ISSUES
1. Whether the provisions of Section 11B of the Act can be applied retrospectively by
SEBI.
2. Whether an order by SEBI restraining a person from associating with any corporate
body in accessing the securities market and prohibiting a person from buying, selling or
dealing in securities would amount to a ‘penalty’ or ‘punishment’ for the purposes of the
protection against ex post facto laws.

1
CIVIL APPEAL NO.1697 OF 2005
 Page 11 of 14

HELD
The Supreme Court of India in this case has ruled that the provisions of section 11B of
the Securities and Exchange Board of India Act, 1992 can be applied retrospectively by
SEBI. The SC has also stated that an order by SEBI restraining a person from associating
with any corporate body in accessing the securities market and prohibiting a person from
buying, selling or dealing in securities would not amount to a ‘penalty’ or ‘punishment’
for the purposes of the protection against ex post facto laws.

 Sahara India Real Estate Corporation Ltd & Ors vs. Securities & Exchange Board of
India (SEBI)2

From 25th April 2008 to 13th April 2011, Sahara India Real Estate Corporation Limited
(SIRECL) and Sahara Housing Investment Corporation Limited (SHICL) floated an issue of
Optionally Fully Convertible Debentures (OFCDs) and started collecting subscriptions from
investors.
The company had over Rs. 17,656 crore during that period. In the guise of “Private Placement”,
the amount was collected from about 30 million investors. This act was performed without
complying with the requisites relevant to the public offerings of the securities. The Whole Time
Member of SEBI was taking cognizance of the act.

On June 23rd ,2011 they passed an order. The order directed two companies to refund the money
to the investors which were collected from them. Additionally, the promoters of the two
companies along with Mr. Subrata Roy were restrained from accessing the securities market until
further orders. An appeal was made before the Securities Appellate Tribunal (SAT) by the
Sahara. This appeal was against the order of the Whole Time Member.

After hearing, on 18th Oct,2011 the SAT confirmed and maintained the order of the Whole Time
Member. Subsequently an appeal was made by Sahara before the Supreme Court of India against
the order of the SAT.

Issue 1. Whether SEBI has the power to adjudicate and investigate in the given matter
according to Section 11, 11A, 11B of SEBI Act and under Section 55A of the Companies
Act. Or whether the jurisdiction under Section 55A (c) of the Companies Act is with the
Ministry of Corporate Affairs (MCA).

2
AIR 2013 SCC 1
 Page 12 of 14

Issue 2. Whether the hybrid OFCDs comes under the definition of “Securities” within the
meaning of SEBI Act, Companies Act and The Securities Contracts (Regulation) Act
(SCRA) for vesting SEBI with the jurisdiction to adjudicate and investigate.

The Supreme Court held that SEBI does have power to investigate and adjudicate in this
matter. It categorically iterated that the SEBI Act is a special legislation bestowing SEBI
with special powers to investigate and adjudicate to protect the interests of the investors.
It has special powers and its powers are not derogatory to any other provisions existing in
any other law and are analogous to such other law and should be read harmoniously with
such other provisions and there is no conflict of jurisdiction between the MCA and the
SEBI in the matters where interests of the investors are at stake. To support this view, the
Supreme Court laid emphasis on the legislative intent and the statement of objectives for
the enactment of SEBI Act and the insertion of Section 55A in the Companies Act to
delegate special powers to SEBI in matters of issue, allotment and transfer of securities

The Supreme Court also held that although the OFCDs issued by the two companies are
in the nature of "hybrid" instruments, it does not cease to be a "Security" within the
meaning of Companies Act, SEBI Act and SCRA. It says although the definition of
"Securities" under section 2(h) of SCRA does not contain the term "hybrid instruments",
the definition as provided in the Act is an inclusive one and covers all "Marketable
securities".
 Page 13 of 14

CONCLUSION
 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.
 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.
 Page 14 of 14

BIBLIOGRAPHY
 BOOKS
o Securities Laws and Capital Market by CS Anoop Jain
o Security Laws and Capital Market by ICSI
o Securities Laws by Taxmann

 ACT
o Securities and Exchange Board of India Act, 1992

 WEBSITES
o https://www.scribd.com/document/125265306/project-on-sebi
o https://cleartax.in/s/sebi
o https://www.elearnmarkets.com/blog/sebi-purpose-objective-functions-sebi/
o https://www.mondaq.com/india/shareholders/203796/sahara-vs-sebi-an-in-depth-
analysis-of-the-landmark-supreme-court-ruling
o https://taxguru.in/company-law/analysis-sc-judgment-case-sebi-vs-ajay-
agarwal.html
o https://www.sebi.gov.in/index.html