The Companies Act, 1956 sets out the code of conduct

for companies with regard to issue, allotment and

transfers of securities.
It provides for
disclosure to be made in the prospectus about the
project,
means of financing,

particulars of company management and

the perceptions of management with regard to risk

factors.
The legal aspects concerning dividends, rights and
bonus issues are covered in the Companies Act.
 The various provisions and regulations of Companies
Act, 1956 which govern the merchant bankers:
Prospectus (Sec. 55 to 68A)
Allotment (Sec. 55 to 75)
Commissions and discounts (Sec. 76 & 77)
Issue of shares at premium and at discount (Sec. 78 &
79)
Issue and redemption of preference shares (Sec. 80 &
80A)
Further issues of capital (Sec. 81)
Nature, numbering and certificate of shares (Sec. 82 to
84)
Kinds of share capital and prohibition on issue of any
other kind of shares (Sec. 85 & 86)
SCRA (Securities Contracts
(Regulations) Act)
The Securities Contract (Regulation) Act, 1956 provides
for regulation of securities trading and control of stock
exchanges.
Recognition and supervision of stock exchanges and
laying down the criteria for listing of securities are
some of the salient features of the SCRA.
The government and the SEBI are empowered by the
SCRA to issue appropriate orders for ensuring the
smooth flow of transactions in stock exchanges.
 The Securities Contracts (Regulations) Act was passed
in 1956 by Parliament and it came into force in February
1957.
An act to prevent undesirable transactions in securities
by regulating the business of dealing therein, by
providing for certain other matters connected
therewith.
This Act may be called the Securities Contracts (Regulation)
Act, 1956.
It extends to the whole of India.
It shall come into force on such date as the Central Government
may, by notification in the Official Gazette, appoint
 The SEBI Act, 1992 established SEBI as market
regulator with all statutory powers.
SEBI was established with the objective of protecting
the interest of investors and for regulation and
development of securities market in India.
It has the powers to regulate all the market
intermediaries.
The SEBI grants registration to the market
intermediaries and has p0wers to inspect, monitor and
take penal actions on them in case of violations of any
provisions of the Act or rules, Issues of securities, stock
exchanges and other market intermediaries are subject
to regulatory power of SEBI.
 Merchant banking in India is governed by SEBI
(Merchant Bankers) Regulations 1992.
It provides for registration of merchant bankers,
general obligations and responsibilities of merchant
bankers, procedures for inspection and procedures for
action in case of defaults.
In the conduct of his business, a merchant banker is
supposed to observe certain codes of conduct.
SEBI has issued some guidelines for regulating the
merchant banking activities and the code of conduct for
the merchant banks is specified in the Schedule III of
the SEBI (Merchant Bankers) Regulations 1992.
 High standards:
Due diligence:
Dealing with competing merchant bankers:
No tall claims:
Cost-effective service:
Confidentially:
Disclosure of information:
Avoid market manipulative practices:
Restrain on advisory role:
SEBI FUNCTIONS
1. Regulatory
a. Registering the brokers and sub-brokers
b. Registration of mutual funds
c. Regulation of stock exchanges
d. Prohibition of fraudulent and unfair trade practice
e. Controlling insider-trading, take-over bids and imposing
penalties
2. Development
a. Educating investors
b. Training intermediaries in stock market transactions
c. Promoting fair transactions
d. Undertaking research and publishing useful information
to all
SEBI has pronounced the following
guidelines for Merchant Bankers
Submission of Offer Document:
Dispatch of issue material
Underwriting
Compliance Obligations
Redressed of investor grievances
The concerned lead merchant banker
Issue of No objection Certificate (NOC)
Registration of Merchant Bankers
Renewal of Registration
Impositions of Penalty Points
 FEMA
The Foreign Exchange Management Act (FEMA) is a
1999 Indian Law "to consolidate and amend the law
relating to foreign exchange with the objective of
facilitating external trade and payments and for
promoting the orderly development and maintenance
of foreign exchange market in India".
FEMA was passed in the winter session of Parliament
in 1999, replacing the Foreign Exchange Regulation
Act (FERA).
This act seeks to make offenses related to foreign
exchange civil offenses.
 It extends to the whole of India, replacing FERA, which
had become incompatible with the pro-liberalization
policies of the Government of India.
It enabled a new foreign exchange management regime
consistent with the emerging framework of the World
Trade Organization (WTO).
It is another matter that the enactment of FEMA also
brought with it the Prevention of Money Laundering
Act of 2002, which came into effect from 1 July 2005.
 The main objective behind the Foreign Exchange
Management Act (1999) is to consolidate and amend
the law relating to foreign exchange with the objective
of facilitating external trade and payments.
It was also formulated to promote the orderly
development and maintenance of foreign exchange
market in India.
FEMA is applicable to all parts of India.
The act is also applicable to all branches, offices and
agencies outside India owned or controlled by a person
who is a resident of India.
 The FEMA head-office, also known as Enforcement
Directorate is situated in New Delhi and is headed by a
Director.
The Directorate is further divided into 5 zonal offices
in Delhi, Mumbai, Kolkata, Chennai and Jalandhar
and each office is headed by a Deputy Director.
Each zone is further divided into 7 sub-zonal offices
headed by the Assistant Directors and 5 field units
headed by Chief Enforcement Officers.
Switch from FERA
The concessions made to FERA in 1991-1993 showed
that FERA was on the verge of becoming redundant.
After the amendment of FERA in 1993, it was decided
that the act would become the FEMA.
This was done in order to relax the controls on foreign
exchange in India, as a result of economic
liberalization.
FEMA served to make transactions for external trade
(exports and imports) easier transactions involving
current account for external trade no longer required
RBIs permission.
 The deals in Foreign Exchange were to be managed
instead of regulated. The switch to FEMA shows the
change on the part of the government in terms of
foreign capital.
 FEMA is applicable in all over India and even branches,
offices and agencies located outside India, if it belongs to a
person who is a resident of India.
It prohibits foreign exchange dealing undertaken other
than an authorised person;
It also makes it clear that if any person residing in India
received any Forex payment (without there being a
corresponding inward remittance from abroad) the
concerned person shall be deemed to have received they
payment from an unauthorized person.
There are 7 types of current account transactions, which
are totally prohibited, and therefore no transaction can be
undertaken relating to them.
These include transaction relating to lotteries, football
pools, banned magazines and a few others.
 FEMA and the related rules give full freedom to
Resident of India (ROI) to hold or own or transfer any
foreign security or immovable property situated
outside India.
Similar freedom is also given to a resident who inherits
such security or immovable property from an ROI.
.