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Corporate and Securities Law CC 30105 - 25/01/2024
Corporate and Securities Law CC 30105 - 25/01/2024
SECURITIES LAW
Securities and Exchange Board of India Act, 1992
CC 30105 - 25/01/2024
Course coordinator : Amitava Banerjee
IICA -MCA assessed eligible Independent Director
FCS, LLB, M. Com, B. Com, Dip in Business Laws (NUJS, Kolkata)
Former Consultant, NFCG (PPP by MCA, Govt of India)
International direct listing - Who are permissible holders, restrictions?
Post MCA’s notification, this notification by Ministry of Finance has paved the way for
implementation of direct listing outside India.
As expected, IFSC – GIFT City has been notified as permissible jurisdiction and the exchanges
operating therein are notified as international exchanges. The traction that GIFT City garners for
companies will help the Government as test case to move to other jurisdictions in future, if they
deem fit.
MCA/SEBI now, may notify certain ancillary procedural rules, and it will be interesting to see how
the industry reacts to this move.
“permissible jurisdiction” means such jurisdiction as notified by the Central Government under
sub-clause (f) of sub-rule (3) of rule 9 of Prevention of Money-laundering (Maintenance of
Records) Rules, 2005.
Issue and Listing on International Exchanges .- A public Indian company may issue equity shares
or offer equity shares of existing shareholders, subject to the following conditions, namely:-
(i) such issue or offer of equity shares of existing shareholders shall be permitted and such shares
shall be listed on any of the specified International Exchange.
(ii) such issue or offer of equity shares of existing shareholders shall be subject to prohibited
activities, and sectoral caps prescribed in paragraph 2 and 3 of Schedule I to these rules;
(iii) such equity shares to be issued by the public Indian company or offered by its existing
shareholders on an International Exchange shall be in dematerialised form and rank pari
passu with equity shares listed on a recognised stock exchange in India
(iv) the public Indian company, any of its promoters, promoter group or directors or selling
shareholders are not debarred from accessing the capital market by the appropriate regulator;
(v) the public Indian company or any of its promoters or directors is not a willful defaulter;
(vi) the public Indian company is not under inspection or investigation under the provisions of the
Companies Act, 2013 (18 of 2013);
(vii)none of its promoters or directors is a fugitive economic offender.
Permissible holder .- means a holder of equity shares of the Company which are listed on
International Exchange, including its beneficial owner:
A holder who is a citizen of a country which shares land border with India, or an entity
incorporated in such a country, or an entity whose beneficial owner is from such a country,
shall hold equity shares of such public Indian company only with the approval of the Central
Government.
Explanation 1.- For the purposes of this clause, permissible holder is not a person resident in
India.
Explanation 2.- The permissible holder, including its beneficial owner, shall be responsible for
ensuring compliance with this requirement.
The public Indian company, in its offer document, by whatever name called in the permissible
jurisdiction, shall make a disclosure to this effect
CC 30105 - 29/01/2024
Course coordinator : Amitava Banerjee
IICA -MCA assessed eligible Independent Director
FCS, LLB, M. Com, B. Com, Dip in Business Laws (NUJS, Kolkata)
Former Consultant, NFCG (PPP by MCA, Govt of India)
Securities and Exchange Board of India Act, 1992
Constitution of SEBI
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.
Powers of SEBI
▪ To approve bye laws of Stock exchanges.
▪ To require the Securities exchange to amend their bye laws.
▪ Inspect the books of accounts and call for periodical returns from recognized Securities
exchanges.
▪ Inspect the books of accounts of financial intermediaries.
▪ Compel certain companies to list their shares in one or more Securities exchanges.
▪ Registration of Brokers and sub-brokers
SEBI in its circular dated May 30, 2012 gave exit - guidelines for Securities exchanges.
This was mainly due to illiquid nature of trade on many of 20+ regional Securities
exchanges.
It had asked many of these exchanges to either meet the required criteria or take a an exit.
SEBI's new norms for Securities exchanges mandates that it should have minimum net-
worth of Rs.100 crore and an annual trading of Rs.1,000 crore.
The Indian Securities market regulator SEBI had given the recognized Securities exchanges
two years to comply or exit the business.
The securities market has two interdependent and inseparable segments, the new issues
(primary) market and the stock (secondary) market.
The primary market provides the channel for creation and sale of new securities, while the
secondary market deals in securities previously issued.
The securities issued in the primary market are issued by public limited companies or by
government undertakings. The resources in this kind of market are mobilized either through the
public issue or through private placement route.
It is a public issue if anyone can subscribe it, whereas if the issue is made available to a selected
group of persons it is termed as private placement.
There are two major types of issuers of securities, the corporate entities who issue mainly debt
and equity instruments and the government (central as well as state) who issue debt securities
(dated securities and treasury bills)
Screen Based Trading: A major developmental initiative was a nation-wide on-line fully-
automated screen based trading system (SBTS) where a member can punch into the computer
quantities of securities and the prices at which he likes to transact and the transaction is executed
as soon as it finds a matching sale or buy order from a counter party.
Risk management: The trading cycle varied from 14 days for specified securities to 30 days for
others and settlement took another fortnight. Rolling settlement on T+5 basis was introduced in
phases. All scrips moved to rolling settlement from December 2001. T+5 gave way to T+3 from
April 2002 and T+2 from April 2003
Depositories Act 1996 : The settlement system gave rise to settlement risk. This was due to the
physical movement of paper. Further, the transfer of shares in favour of the purchaser by the
company also consumed considerable amount of time.
Securities Market Awareness: In January 2003, SEBI launched a nation-wide Securities Market
Awareness Campaign that aims at educating investors about the risks associated with the market
as well as the rights and obligations of investors.
Green Shoe Option- As a stabilization tool for post listing price of newly issued shares, SEBI has
introduced the green shoe option facility in IPOs.
Debt Listing Agreement- In order to further develop the corporate debt market, SEBI prescribed a
model debenture listing agreement for all debenture securities issued by an issuer irrespective of
the mode of issuance
Gold Exchange Traded Funds : Pursuant to the announcement made by the Honourable Finance
Minister in his Budget Speech for 2005-06, SEBI appointed a Committee for the introduction of
Gold Exchange Traded Fund (GETF) in India. Based on the recommendations of the said Committee,
the SEBI (Mutual Funds) Regulations, 1996 were amended and notification was issued on January
12, 2006 permitting mutual funds to introduce GETFs in India subject to certain investment
restrictions.
Guidelines for Issue of Indian Depository Receipts (IDRs)- SEBI issued Guidelines on
disclosures and related requirements for companies desirous of issuing IDRs in India. SEBI also
prescribed the listing agreement for entities issuing IDRs.
Grading of Initial Public offerings (IPOs)- Grading of all IPOs was made mandatory. The grading would be
done by credit rating agencies, registered with SEBI. It would be mandatory to obtain grading from at least
one credit rating agency. The grading would be disclosed in the prospectus, abridged prospectus and in
every advertisement for IPOs.
KYC - Mandatory Requirement of (PAN) for All Transactions in the Securities Market- SEBI stipulated
that PAN would be the sole identification number for all participants in the securities market, irrespective of
the amount of transaction with effect from July 02, 2007.
The objective was to strengthen the ‘Know Your Client’ (KYC) norms through a single identification number
for all participants in the securities market for facilitating sound audit trail
Setting up of SME Exchange- SEBI decided to put in place a framework for setting up of new exchange or
separate platform of existing stock exchange having nationwide terminals for SME. In order to operationalise
the said framework, necessary changes have been made to applicable regulations, circulars etc. As per the
framework, market making has been made mandatory in respect of all scrips listed and traded on SME
exchange.
There will be occasions when you have a complaint against a listed company/ intermediary
registered with SEBI. In the event of such complaint you should first approach the concerned
company/ intermediary against whom you have a complaint.
However, you may not be satisfied with their response. Therefore, you should know whom
you should turn to, to get your complaint redressed.
SEBI takes up complaints related to issue and transfer of securities and non-payment of
dividend with listed companies. In addition, SEBI also takes up complaints against the various
intermediaries registered with it and related issues.
where; Investor has approached the listed company or registered intermediary for
redressal of the complaint and,
The concerned listed company or registered intermediary rejected the complaint or,
The complainant does not receive any communication from the listed company or
intermediary concerned or,
The complainant is not satisfied with the reply given to him or redressal action taken
by the listed company or an intermediary.
In case investor fails to lodge a complaint within the stipulated time, he may directly
take up the complaint with the entity concerned or may approach appropriate court
of law.
▪ The International Organization of Securities Commissions (IOSCO) was created in 1983 with the decision
to change from an inter-American regional association (created in 1974) into a global cooperative body.
▪ In 1984, securities regulators from France, Indonesia, Korea and the United Kingdom were the first
agencies to join the organization from outside the America.
▪ Then in 2005, IOSCO endorsed the IOSCO MMoU as the benchmark for international cooperation among
securities regulators and set-out clear strategic objectives to expand the network of IOSCO MMoU
signatories by 2010.
▪ It approved as an operational priority the effective implementation - in particular within its membership
- of the IOSCO Principles and of the IOSCO MMoU, which are considered primary instruments in
facilitating cross-border cooperation, reducing global systemic risk, protecting investors and ensuring
fair and efficient securities markets. The Securities and Exchange Board of India is also a signatory
to IOSCO MoU
An Act to provide for the establishment of a Board 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.
An Act to provide for the establishment of a Board 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.
Section 11 of the Act lays down 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.
▪ Inspection of Company : Section 11(2A) prescribes that SEBI may take measures to undertake
inspection of any book, or register, or other document or record of any listed public company or a
public company (not being intermediaries referred to in section 12) which intends to get its
securities listed on any recognised stock exchange where SEBI has reasonable grounds to believe
that such company has been indulging in insider trading or fraudulent and unfair trade practices
relating to securities market.
▪ Civil court : 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.
▪ Use amount for IEPF - Section 11(5) of the Act authorises SEBI to disgorge the amount, pursuant to
direction issued under section 11B or section 12A of the Securities Contracts (Regulation) Act, 1956
or section 19 of the Depositories Act, 1996, as the case may be, shall be credited to the Investor
Education and Protection Fund established by SEBI and such amount shall be utilized by SEBI in
accordance with the regulations made under this Act.
▪ Issue of prospectus : 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.
▪ Listing of securities: 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
▪ Cease & desist : Section 11D deals with the cease and desist powers of 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.
▪ Chapter VA of the Act deals with prohibition of manipulative and deceptive devices, insider trading
and substantial acquisition of securities or control. Section 12A of the Act provides that a person
shall not directly or indirectly:
▪ (a) use or employ, in connection with the issue, purchase or sale of any securities listed or proposed
to be listed on a recognized stock exchange, any manipulative or deceptive device;
▪ (b) employ any device, scheme or artifice to defraud in connection with issue or dealing in securities
which are listed or proposed to be listed
▪ (c) engage in any act, practice, course of business which operates or would operate as fraud or
deceit upon any person,
▪ (d) engage in insider trading;
▪ (e) deal in securities while in possession of material or non-public information or communicate such
material or non-public information to any other person,
▪ (f) acquire control of any company or securities more than the percentage of equity share capital of
a company whose securities are listed or proposed to be listed on a recognized stock exchange in
contravention of the regulations made under this Act.
▪ 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.
(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 parte;
(g) setting aside any order of dismissal of any application for default or any order passed by it ex parte;
(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.
(b) SEBI has persistently made default in complying with any direction issued by the Central
Government under this Act or in the discharge of the functions and duties imposed on it by or under the
provisions of this Act and as a result of such default the financial position of SEBI or the administration of
SEBI has deteriorated; or
(c) circumstances exist which render it necessary in the public interest so to do, it may, by notification,
supersede SEBI for such period, not exceeding six months, as may be specified in the notification.
(d) On the expiration of the period, the Central Government may reconstitute SEBI by a fresh
appointment and in such case any person or persons who vacated their offices because of supersession
shall not be deemed disqualified for appointment.
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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(1) Where an offence under this Act has been committed by a company, every person who at
the time the offence was committed was in charge of, and was responsible to, the company
for the conduct of the business of the company, as well as the company, shall be deemed to
be guilty of the offence and shall be liable to be proceeded against and punished accordingly;
However, this provision shall not render any such person liable to any punishment provided in
this Act, if he proves that the offence was committed without his knowledge or that he had
exercised all due diligence to prevent the commission of such offence.
(2) Where an offence under this Act has been committed by a company and it is proved that the
offence has been committed with the consent or connivance of, or is attributable to any
neglect on the part of, any director, manager, secretary or other officer of the company,
then he shall be deemed to be guilty of the offence and shall be liable to be proceeded against
and punished accordingly.
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