Unit-5

Legal & Statutory frame Work

 Contents
1. SEBI (DIP) 2000
2. SEBI (Intermediaries) regulations 2008
3. SEBI securities Market Regulations 2003
(Prohibition of Fraudulent and Unfair Trade Practices)
4. SEBI Prohibition of Insider Trading Regulations 1992
5. Powers of SEBI

2
SEBI DIP guidelines
2000
 SEBI (DIP) guidelines
DIPs stands for disclosures and Investors protection guidelines

Framed in 2000 & has been updated in 2005, 2008 and then in 2015.

Has been framed to protect the interests of investors in securities

and to promote the development of strong capital markets

Consists of various guidelines which are extremely important .

 SEBI (DIP) guidelines
1. Materiality of Risk Factors
Risk factors and management perception of those risk factors, if any have
to appear on the first inner page of the offer document .

2. Undertaking by the directors in the draft ‘Offer Document

The directors of the company accept responsibilities for the
statement/disclosures made in the final offer document signed by them.

3. Strengthening disclosures about the promoters/directors

The Guidelines requires disclosures regarding name, address and
shareholding of the promoters/directors in the offer document.

4. Means of Finance
Means of Finance of the project of a particular issue is to be disclosed in
the offer document.
 SEBI (DIP) guidelines
5. Long-term capital expense and working capital expense
Long-tern fund requirement and working capital requirement is required
to be done under the heading 'Objects of Issue' in the offer document.

6. Provisions relating to QIBs in Book-Building issues

No prescribed financial commitment from the Qualified Institutional
Buyers (QIBs) participating in Book-Building Issues.

7. Reference date for reckoning 'Net Worth'

A company is required to make an issue through Book Building route if
the issue size of the company exceeds five times the pre issue net worth

8. Transfer of locked-in shares in case of public issue

As per Guidelines, interse transfer of locked-in share amongst promoters
are permissible subject to continuity of lock-in in the hands of transferee.
 SEBI (DIP) Guidelines
9. Disclosure of Financial statements based on different accounting
standards
Issuer companies, can incorporate financial statements based on more
than one accounting standard (Accounting Standards specified by ICAI
and US GAAP, in the offer document)

10. Due diligence of Merchant Bankers

A merchant banker who is associated with the Issuer Company as a
promoter or director is prohibited from lead managing the issue.

11. Branding of securities

SEBI (DIP) guidelines permits Instruments to be branded as 'safety
bonds.

12. Rationalization of Observation Procedure

The draft offer document submitted to SEBI is to be refilled if any material
change takes place after the filing of offer document to SEBI.
 SEBI (DIP) guidelines
13. Commencement of lock-in period
The last date of lock-in of minimum promoters’ contribution shall be
reckoned as three years from the date of allotment in the public issue or
from the date of commercial production, whichever is later.

14. Definition of Profit for eligibility

An unlisted company can come out with a fixed price issue if it has a
track record of making profit in 3 years of immediately preceding last 5
years.
SEBI (intermediaries
regulation ) 2008
 SEBI (intermediaries regulation )
1. Application for grant of certificate.
An application, for grant of a certificate to act as an intermediary, shall be
made to the Board in Form A of Schedule I with additional information
and the application fee.

2. Disclosure of information.
The information contained in Part I of Form A shall be disclosed to the
public by uploading such information on the website as specified by the
Board:

3. Furnishing of information and clarification.

The applicant has to furnish further information or clarifications,
regarding matters relevant to the activity of such an intermediary to
consider the application within the time .
 SEBI (intermediaries regulation )
4. Verification of information.
The Board may undertake a physical verification of documents, office
space, and inspect the availability of office space, infrastructure, and
technological support which the applicant is required to have

5. Consideration of application.
For considering the eligibility and grant of certificate to such applicant,
the Board shall take into account all matters which it deems relevant to
the activities in the securities market,

6. Conditions of certificate.
Any certificate granted by the Board to an intermediary shall be subject to the
certain conditions as stipulated from time to time

7 Period of validity of certificate.

Subject to compliance with the provisions of the Act, the certificate
granted to an intermediary shall be permanent unless surrendered
 SEBI (intermediaries regulation )
5. General obligations.

An intermediary shall provide the Board with a certificate of its

compliance to the concerned officer on the 1st April of each year

He should certify that all disclosures made in Form A and under the
relevant regulations are true and complete and shall prominently display
a photocopy of the certificate at all its offices including branch offices.

He should prominently display the name and contact details of the

compliance officer to whom complaint may be made in the event of any
investor grievance.

He shall maintain such books, accounts and records as specified in the

relevant regulations.
 SEBI (intermediaries regulation )

6. Redressal of investor grievances.

The intermediary shall make endeavors to redress investor grievances
within forty-five days of receipt thereof and when called upon by the
Board

7. Investment advice.
An intermediary, its directors, officers, employees or key management
personnel shall not render, directly or indirectly, any investment advice
about any security in the publicly accessible media

8. Code of conduct.
An intermediary and its directors, officers, employees and key
management personnel shall continuously abide by the code of conduct
specified in Schedule III.
SEBI (Prohibition of fraudulent and unfair trade
practices relating to securities market)
regulations 2003
 Prohibition of dealings in securities
No person shall directly or indirectly
(a) Buy, sell or otherwise deal in securities in a fraudulent manner

(b) Use or employ, in connection with issue, purchase or sale of any

security listed or proposed to be listed in a recognized stock
exchange, any manipulative or deceptive device in contravention of
the provisions of the Act or regulations
(c) Employ any device, scheme or artifice to defraud in connection with
dealing in or issue of securities which are listed or proposed to be
listed on a recognized stock exchange;

(d) Engage in any act, practice, course of business which operates as

fraud upon any person in connection with any dealing in or issue of
securities in a recognized stock exchange
 Prohibition of unfair trade practices
No person shall directly or indirectly

 Indulge in a fraudulent or an unfair trade practice in securities.

 Deal in securities that are deemed to be a fraudulent or an unfair trade

practice if it involves fraud

 Fraud as per regulation includes any act, expression, omission or

concealment committed whether in a deceitful manner or not by a
person or by any other person with his connivance or by his agent
while dealing in securities in order to induce another person or his
agent to deal in securities, whether or not there is any wrongful gain or
avoidance of any loss.
 Prohibition of unfair trade practices
Fraud Includes
1. Indulging in an act which creates misleading appearance of trading
in the securities market

2. Dealing in a security only inflate, depress or cause fluctuations in the

price of for wrongful gain

3. Advancing money to any person to buy security in any issue only

with the intention of securing the minimum subscription to such
issue.

4. Paying to any person any money with the object of inflating,

depressing, maintaining or causing fluctuation in the price .
 Prohibition of unfair trade practices
Fraud Includes

5. Any act amounting to manipulation of the price of a security;

6. Publishing any information which is not true in the course of dealing in

securities;

7. Entering into a transaction without intention of performing it.

8. Selling, dealing or pledging of stolen or counterfeit security whether in

physical or dematerialized form.

9. An intermediary promising a certain price in respect of buying or selling of a

security to a client and waiting till a discrepancy arises in the price and
retaining the difference in prices as profit for himself;
 Prohibition of unfair trade practices
Fraud Includes

10. An advertisement that is misleading and may influence the decision of

the investors.

11. An intermediary not disclosing to his client, a transactions entered

into on his behalf including taking an option position.

12. Encouraging the clients by an intermediary to deal in securities solely

with the object of enhancing his brokerage or commission.

13. Planting false or misleading news which may induce sale or purchase
of securities
SEBI Prohibition of Insider Trading Regulations 1992
 Insiders trading regulation 1992

SEBI (Prohibition of Insider Trading) Regulations, 1992 was framed

with a main objective of prohibiting an insider from making any
personal gain from unpublished price sensitive information.

These regulations are applicable for all listed companies

Subsequent amendments were made in 2002 , 2008 and 2015

An insider would be a person who is or was connected to the company

and who is reasonably expected to have access to unpublished price-
sensitive information in respect to the securities of that company.

Price sensitive information means any information which relates

directly or indirectly to a company which if published is likely to
materially affect the price of securities of company
 Insiders trading regulation 1992
No insider shall
1. Either on his own behalf or on behalf of any other person, deal in
securities of a company listed on any stock exchange any unpublished
price sensitive information;

2. Communicate ,counsel or procure directly or indirectly any

unpublished price sensitive information to any person

3. If the Board suspects that any person has violated any provision of
these regulations, it may make inquiries and may appoint one or more
officers to inspect the books and records of the insider

4. It shall be the duty of every insider, who is being investigated to

produce to the investigating authority such books, accounts and other
documents in his custody with the statements and information relating
to the transactions in securities market as sought by the authority
 Insiders trading regulation 1992
As per the Act, insider trading , if an insider is found guilty ,
a penalty of INR 250,000,000 (Rupees Two Hundred Fifty Million Only)
or 3 times the profit made out of insider trading, whichever is higher
will be levied

SEBI (Prohibition of Insider Trading Regulations) 2015 ("Regulations")

was published on January 15, 2015 replacing the two-decade old
insider trading norms in India.

As per new regulations , any person who is found to be guilty of

contravening or attempting to contravene the Act may also be liable to
be imprisoned for a term which may extend to ten years or with fine
which may extend to INR 250,000,000 (Rupees Two Hundred Fifty
Million Only) or with both.
Powers of SEBI
Power of Board to order for
investigation
 investigation
If there is reasonable ground to believe

(a) That the transactions in securities are being dealt with in a

manner detrimental to the investors or the securities market in
violation of these regulations;

(b) Any intermediary or any person associated with the

securities market has violated any of the provisions of the Act
or the rules or the regulations,
 Powers of investigating Authority
To call for information or records from any person specified
in section 11(2)(i) of the Act;

To undertake inspection of any book, or register, or other

document or record of any listed public company which
intends to get its securities listed on any recognized stock
exchange

To keep in its custody any books, registers, other documents

and record produced for a maximum period of six months

To examine orally and to record the statement of the person

and to be used as an evidence
Duty to co operate by the company

Allow the Investigating Authority to have

access to the premises for the purpose of
investigation;

Extend to the Investigating Authority

reasonable facilities for examining any books,
accounts and other documents for the
purposes of the investigation;
 Submission of report and
enforcement by the Board

The Investigating Authority shall, on completion

of investigation submit a report to the appointing
authority:

The Board after consideration of the report finds

that there is a violation of the regulations and
after giving necessary opportunity take action as
mentioned in regulation on the company
 Action to be taken
Suspend the trading of the security

Restrain from accessing the securities market

Suspend any office-bearer of any stock exchange

Impound and retain the proceeds or securities

The Board may

(a) Issue a warning or censure

(b) suspend the registration of the intermediary; or
(c) cancel of the registration of the intermediary
 Unit-5

concluded