Definition of company:

Sec.3(1)(i) of the Companies Act,1956 defines a company as:

A company means a company formed and registered under this Act or an existing company
Company is defined as a voluntary incorporated association which is an artificial person, created by
law with limited liability having a common seal and perpetual succession.
Characteristics/Essentials of a company:
1)
Registration: A company is to be compulsorily registered under the Companies Act.
2)
Distinct person-Separate legal entity: A company is a distinct person possessing its
own identity. It is altogether a separate legal entity, independent from its members, though
controlled by the Board of Directors. However, company is a non-statutory body. For e.g.
Soloman v. A.Saloman & Co.(1897)
3)
Perpetual Succession: A company incorporated never dies. It has a perpetual
succession. Its members may come and go but the company can go on forever and remain
the same entity. The death or insolvency of any member does not affect the corporate
existence of the company. It may be wound up.
4)
Artificial person but not a citizen: The company is an artificial person. It functions
through its Board of Directors. However, it is not a citizen as it cannot enjoy the rights under
the constitution of India. It was held that neither the provisions of the constitution not the
Citizenship Act apply to it.(State Trading Corporation of India v.C.T.O. 1963)
5)
Transferable Shares: S.82 of the Companies Act provides that the shares or
debentures, other interest of any member in a company shall be movable property,
transferable in the manner provided for in the articles of the company. However, in a private
limited company, there are certain restrictions on the transferability of its shares.
6)
Limited Liability: Any person can participate in the share capital of an incorporated
company and limit his liability to the extent of his participation. Limited liability means the
members cannot be called upon, in case of liquidation or winding up of the company to
contribute more than what has been agreed by them to subscribe, by way of participation in
the share capital of the company.
7)
Common Seal: The company has a separate legal existence under its own common
seal. It can enter into contracts with outsiders, with its directors or with its members. The
common seal of the company gives it an independent existence.
8)
Separate property: The company being a distinct and legal personality can own,
enjoy and dispose off property in its own name. It is the owner of its capital and assets
though contributed by its members. Hyderabad(Sind)Electric Supply Co.v Union of
India(A.I.R.1959 Punj.199)
9)
Capacity to sue and be sued: A company can sue and be sued in its corporate
name.

Types of Companies:
1)
Royal Charter or Chartered Companies: These companies are incorporated under
special Royal Charter issued by King or Queen. Their powers and actions are governed by
the charter for e.g. Bank of England, East India Company etc.

2)
Statutory Companies: These companies are formed under the Special Statutory Act
of the Parliament or State Legislative. These companies are governed by the act of
Parliament or by State Legislature. These companies are mostly public undertakings and are
formed with the main object of public utilities and not for profits. For e.g. RBI, SBI.IFCI, LIC
etc.
3)
Registered Companies under the Act: Companies registered under the Companies
Act 1956 or any previous companies act are companies registered under the Companies Act.
All companies are now regulated by the provisions of the Companies Act,1956. There are
three types of companies:
a)
Companies Limited by Shares: These types of companies have a share capital. The
liability of each member of the company is limited by the Memorandum to the extent of face
value of shares subscribed by him. In other words, during the existence of the company or in
the event of winding up, a member can be called upon to pay the amount remaining unpaid
on the shares subscribed by him. Such companies are called company limited by shares.
b)
Companies limited by guarantee: These types of companies may or may not have a
share capital. Each member promises to pay a fixed sum of money specified in the
Memorandum in the event of liquidation of the company for payment of the debts and
liabilities of the company.[Sec.13(3)]. This amount promised by him is called guarantee The
Articles of Association of the company state the number of members with which the company
is to be registered[Sec.27(2)]. Such a company is called a company limited by guarantee.
c)
Unlimited Companies: The liability of the members in these companies is unlimited
like an ordinary partnership firm, in proportion to his interest in the company. Section 12 gives
choice to the promoter to form a company with or without limited liability. A company not
having any limit on the liability of its members is called an unlimited liability. Such company
may or may not have share capital.
4) Private Limited Companies [Sec.3(1)(iii)]: Private limited company means a company
which has minimum paid up capital of one lac rupees or such higher paid up capital as may
be prescribed. The articles of the company:
a) Restricts the right to transfer its shares, if any
b) Limits the number of its members to 50
c) Prohibits any invitation to the public to subscribe for any shares in, or debentures of the
company
d) Prohibits any invitation or acceptance of deposits from public
Words Private Limited should be used at the end of the companys name. The company
must have its own Articles of Association. Any two or more persons can join hands together
to form private limited company.
5) Public Limited Company[Sec.3(1)(i)]: A company which is not private company is public
company. Any seven or more persons can join hands together to form public limited
company. Its maximum membership is unlimited. By Companies Act public company means,
which
a) Is not a private company
b) Has minimum paid up capital of five lac rupees or such higher paid up capital
c) Is a private company which is a subsidiary of public company.
6) Holding Company and Subsidiary Company[Sec.4&212]: When one company controls
another company it is called a holding company. The other company which it holds is called a
subsidiary company. One company holds another company in any of the following ways:
a) Where it controls the composition of the Board of Directors of another company; or
b) Where it controls more than half of the total voting power of the other company; or

c) Where it holds more than half of the nominal value of equity share capital of the other
company; or
d) Where it is a subsidiary of any company which is the subsidiary of some other company.
7) Government Company[Secs.617&619]: Any company in which more than 51% of the paid
up capital is held by the Central Govt. or by any State Govt. or Govts. Or partly by the Central
Govt. and partly by one or more State Govts. Is called a Govt. Company. A company
subsidiary of a Government company is also called a Government company.[Sec.617] The
audit of these companies is carried out under the supervision of Comptroller and Auditor
General of India. Annual reports and accounts of these companies are to be placed before
either the Houses of Parliaments or state legislature as the case may be. These companies
are regulated by the provisions of the Companies Act
8) Foreign Company[Sec.592 to 608]: A company incorporated outside India is a foreign
company. Sections 592 to 608 of the Companies Act apply to foreign companies which:
i)after 1st April 1956, establish a place of business within India;
ii)before 1st April 1956, have established a place of business within India and continue to
have an established place of business within India on 1 st April,1956. The foreign company
has to comply with following regulations.
A) Company has to file following documents within 30 days of the establishment of the place
of business in India with Registrar of Companiesa) a certified copy of memorandum and articles of the company
b) the full address of registered or principal office of the company
c) a list of directors and secretary of the company
d) the full address of the office of the company in India.
B) If any alteration is made or occurs in the above documents, the company shall within
prescribed time deliver to the Registrar for registration in prescribed form.
C) The company has to file its Balance Sheet and Profit & Loss A/C with registrar of
Companies for every calendar year.
D) The company has to prescribe its name and country of incorporation in every required
document.
E) Other Provisions: registration of charges[secs.124-145] books of accounts[secs.209]
annual returns[sec.159]
F) Prospectus of foreign company: The prospectus of a foreign company shall be dated and
contain following particulars:
i) The instrument defining the constitution of the company
ii) name of the company
iii) date and country in which it is incorporated
iv) address of its principal office in India
v) provisions of law under which the company was incorporated
It must be registered before it is issued[Sec.605]
G) Where a foreign company ceases to carry on business in India, it may be wound up as an
unregistered company.

Memorandum of Association

Sec.2(28) of the companies Act defines Memorandum:Memorandum means the MOA of a

company as originally framed or altered from time to time in pursuance of any previous companies
law or of this Act. It is a fundamental charter of the company. Company is governed by the MOA.
The company is allowed to function within the framework of MOA. The MOA defines the extent and
powers of the company which co. cannot exceed. It is a public document and can be inspected by
anybody.
Contents of MOA:[Sec.13]
1)
2)
3)
4)
5)
6)
1)

Name of the company

Registered office of the company
Objects of the company
Liability of the company
Details of share capital of the company
Subscription or Association Clause
Name Clause[Sec.20]:Promoters of the company have to make an application to the
Registrar of Companies for the availability of name. The company can adopt any name if:
a) There is no other company registered under the same or under an identical name
b) The name should not be considered undesirable and prohibited by the central
government
c) Once the name has been approved and the company has been registered, the company
has to mention the name of the company with registered office where it is required and
words like Limited or Private Limited must be added to the name,
Where the name of the company closely resembles the name of the company already
registered, the court may direct the change of the name of the company.
2) Registered Office of the Company[Sec.146]: The company shall have a registered office
within 30 days after the date of its incorporation. The memorandum must specify the state in
which the registered office of the company is situated. All documents and notices to be
served on the company, must be served at its registered office. Company shall give notice
within 30 days to the Registrar of the situation of the registered office.
3) Objects Clause[Sec.13&149]: This clause limits and extents the activities of the company.
The memorandum must statea) The main objects of the company to be pursued by the company on its incorporation
b) The objects incidental or ancillary to the attainment of the main object
c) Other objects of the company.
Objects stated in the main objects are to be pursued by the company immediately after
incorporation or within a reasonable time thereafter. The objects clause enables the
subscribers of the shares and creditors of the company:
a) To be fully aware of the objects to which their money can be employed
b) To protect the creditors by ensuring that their funds cannot be used in unauthorized way.
4) Capital Clause[Sec.13]: Memorandum shall state the amount of share capital with which the
company is to be registered and division of the into shares of a fixed amount. The capital with
which company is registered is called the authorized or nominal share capital. The amount of
nominal share capital would be amount required to attain the main objects of the company.
No subscriber to the Memorandum shall take less than one share. Each subscriber shall
write against his name the number of shares he takes.

5) Liability Clause[Sec.13]: The liability of the members is limited to the extent of the shares
subscribed by the members if the company is formed with share capital or to the extent of the
guarantee given by the members if the company is formed with guarantee. The
memorandum of a company limited by shares or guarantee shall state that the liability of its
members is limited. This means that no member can be called upon to pay anything more
than the nominal value os shares held by him or amount that is unpaid.
6) Subscription Clause[Sec.13]: Each subscriber to memorandum shall take at least one
share. The signatures of the subscribers shall be attested by at least one witness[Sec.13(4)].
After incorporation, no subscriber can withdraw his name on any ground whatsoever.
Articles of Association[Sec.2(2) & 26 to 29]: Sec.2(2) of the Companies Act defines Articles
Articles means the AOA of a company as originally framed or altered from time to time in
pursuance of any previous companies law or of this Act, including so far as they apply to the
company, the regulations contained, as the case may be, in Table A to Schedule I of this Act Public
company limited by shares may or may not have AOA. It prescribes regulations of the company.
The Articles are subordinated to MOA and under full control of its members.
Content of AOA:
Exclusion wholly or in part of Table A.
Adaption of Preliminary contracts.
Number & Value of Shares.
Allotment of shares.
Calls on shares.
Lien on shares.
Transfer & transmission of shares.
Forfeiture of shares.
Alteration of Capital.
Share Certificate.
Conversion of shares in to stock.
Voting rights and proxies.
Meetings.
Directors, their appointments, etc.
Borrowing powers.
Dividends and reserves.
Accounts and audit.
Winding up.
Shares[Sec.2(46),82,83 & 84]: Sec.2(46)of the Companies Act defines a Share as under:A share
means share in the share capital of the company. It includes stock except where a distinction
between stock and shares is expressed or implied. Share capital of a company is divided into
shares of different denominations. These denominations are called shares.
Types of share capital:
a) Authorized Share Capital: This is the capital with which the company is registered. It
comprises of the total face value of the shares in the company. It is also called as Total or
Nominal Capital. It is mentioned in MOA.
b) Issued Capital: The entire authorized capital may not be required to be raised by the
company initially. The company issues shares to the extent of its requirement. It is called
issued capital. It may be equal to or less than nominal capital.

c) Subscribed capital: That part of the issued capital which is agreed to be taken up by the
public is called the Subscribed Capital
d) Paid up Capital: The amount actually paid up by the subscribers towards the capital accepted
by them is called Paid up Capital.
e) Uncalled Capital: It is a part of subscribed capital which is not called by the company.
Types of shares:
a) Equity Shares
b) Preference Shares
a) Preference shares:[Sec.85]
Preference share capital is the sum total of preference shares. These shares carry the
following preferential rights over equity shares:
1) As regards dividends(fixed amount or amt. calculated on fixed rate)
2) On winding up of the company, to return of capital paid up[Sec.85(1)]
The preference shareholders cannot have voting powers.
Types of Preference Shares:
i)
Cumulative Preference Shares: These shares are entitled to dividends only when there
are sufficient profits are available to distribute as dividends. As the dividends are
accumulated, they are called Cumulative Preference Shares. If profits are not sufficient
to pay dividends in a particular year, then the dividends are accumulated and paid in next
year along with the fixed rate of dividends for that year.
ii)
Redeemable Preference Shares: Shares which can be purchased back by the company
are called Redeemable Preference Shares. The company reserves its rights to
purchase the shares as per the terms of those shares. A company limited by shares can
issue this type of preference shares if it is authorized by its articles. The articles must
authorize the redemption of preference shares at the option of the company.
iii)
Participating Preference Shares: These shares have a right to a share in the surplus
profits of the company besides fixed dividends.
iv)
Convertible Preference Shares: These shares may be converted into equity shares.
Redemption of Preference Shares
a) The shares shall be redeemed only:
1)out of the profits of the company or
2) out of the proceeds of a fresh issue of shares made for the purpose of redemption
b) Only fully paid up preference shares shall be redeemed
c) The premium on redemption shall be provided out of profits or security premium account,
before redemption.
d) Where shares are redeemed out of profits then a sum equal to the normal amount of the
shares redeemed shall be transferred to reserve fund. Such reserve fund is called as Capital
Redemption Reserve. Only distributable profits can be used to create CRR. The amount of
CRR can only be used to issue fully paid bonus shares. The redemption does not create any
reduction in capital of the company. The company has to give notice to ROC regarding
redemption of preference shares.
Shelf Prospectus: Shelf prospectus means a prospectus issued by any financial institution or
bank for one or more issues of the securities or class of securities specified in that prospectus.
Any public financial institution, public sector bank or scheduled bank whose main object is
financing shall file a shelf prospectus. A company filing a shelf prospectus with the registrar
shall not be required to file prospectus afresh at every stage of offer of securities by it within a
period of validity of such shelf prospectus. A company filing a shelf prospectus shall be
required to file an information memorandum on all material facts relating to new charges

created, changes in financial position, previous offer of securities. An information

memorandum along with the shelf prospectus filed at the stage of the first offer of securities.

SECURITIES AND EXCHANGE BOARD OF INDIA ACT,1992.

The preamble to the SEBI Act reads as under:
An Act to provide for the establishment of a board (i.e. SEBI Board) to protect the interest of
investors in securities and to promote the development of, and to regulate, the securities
market and for matters connected therewith or incidental thereto.
Objects of sebi act
The objects of SEBI Act are as follows:
a. Protection of the interests of investors in securities.
b. Promoting orderly and healthy growth of the securities market.
c. Regulation of the securities market and other incidental matters.
d. Promoting the fair dealings by the issuer of securities and ensuring a market place where
they can raise funds at a relatively low cost.
e. Regulating and developing a code of conduct and fair practices by intermediaries like
brokers, merchant bankers etc. with a view to making them more competitive and
professional.
f. Monitoring the activities of stock exchanges, mutual funds and merchant bankers etc.
Establishment of sebi
The Central Government has been given the power to set up SEBI by issuing a notification.
In the exercise of such powers, SEBI has been established as a body corporate having
perpetual succession and a common seal. It has powers to acquire, hold and dispose of
property, both movable and immovable, to contract and to sue and be sued. The head office
of SEBI is situated at Plot No. C4-A, G Block, BKC, Bandra (E),Mumbai-400051.
Constitution
The SEBI shall consist of the following members:
a. A chairman to be appointed by the CG.

b. Two members from amongst the officials of the Ministry of CG dealing with finance and
administration of the Companies Act, 1956. to be nominated by the Central Government.
c. One member from amongst the officials of the RBI to be nominated by RBI.
d. Five other members of whom at least three shall be whole time members to be appointed by
the CG.
The general superintendence, direction and management of the affairs of the SEBI shall vest in a
Board of members, which may exercise all powers and do all acts and things which may be
exercised or done by the SEBI.
The chairman shall also have powers of general superintendence and direction of the affairs of
the SEBI and may also exercise all powers and do all acts which may be exercised or done by
the SEBI.

Duties of sebi
It shall be the duty of SEBI to protect the interest of investors in securities and to promote the
development of, and to regulate the securities market, by such measures as it thinks fit.
Specific powers of sebi:Sec.11
Regulating the business in stock exchanges and any other securities market.
Registering and regulating the work of stock brokers, sub-brokers, share transfer agents,
bankers to an issue, trustees of trust deeds, registrars to an issue, merchant bankers,
underwriters, portfolio managers, investment advisers and such other intermediaries who
may be associated with securities markets in any manner.
Registering and regulating the working of venture capital funds and collective investment
schemes, including mutual funds.
Registering and regulating work of depositories, participants, custodians of securities, FIIs,
credit rating agencies and such other intermediaries as SEBI may, by notification, specify in
this behalf.
Prohibiting fraudulent and unfair trade practices relating to securities market.
Prohibiting insider trading in securities.
Promoting and regulating self regulatory organisations.
Regulating substantial acquisition of shares and take over of companies.
Performing such functions and exercising such powers under provisions of the Securities
Contract (Regulation) Act, 1956, as may be delegated to it by the CG.
Levying fees or other charges for carrying out the purposes of this section.
Calling for information and record from any bank or any other authority or board or
corporation established or constituted under any Central, State or Provincial Act in respect of
any transaction in securities which is under investigation or inquiry by the SEBI.
Calling for information from undertaking, inspection, conducting inquiries and audit of stock
exchanges, mutual funds, other persons associated with the securities market, intermediaries
and self regulatory organisations in security markets.
Calling from or furnishing to any such agencies, as may be specified by the SEBI, such
information as may be considered necessary by it for the efficient discharge of its functions.
Conducting research for the above purposes.
Other powers

Power to make inspection: SEBI may make inspection of any book or register or other
document or record of any listed company or any public company which intends to get his
securities listed on any recognised stock exchange. SEBI may make an inspection only if it
has reasonable ground to believe that such company has been indulging in insider trading or
fraudulent and unfair trade practices relating to securities market.
Powers of civil court: While trying a suit, the SEBI shall have same powers as are vested in
a civil court under Code of Civil Procedure, 1908.s

Regulation or prohibition of issue of prospectus etc.: Sec. 11a

SEBI may take following measures for protection of investors:
It may specify by regulations:
a. The matters relating to issue of capital, transfer of securities and other matters incidental
thereto; and
b. The manner in which such matters shall be disclosed by the companies.
It may, by a special or general order:
a. Prohibit any company from issuing of prospectus, any offer document, or advertisement
soliciting money from the public for the issue of securities; and
b. Specify the conditions subject to which the prospectus, such offer document or
advertisement, if not prohibited, may be issued.
It may specify the requirements for listing and transfer of securities and other matters
incidental thereto.
Powers of sebi to order investigation:Sec.11c
The powers of SEBI relating to investigation are as follows:
Grounds for order of investigation: In the following cases, SEBI may appoint Investigating
Authority to investigate the affairs of an intermediary or a person associated with the security
market:
a. Where SEBI has reasonable ground to believe that the transactions in securities are being
dealt with in a manner detrimental to the investors or the securities market; or
b. Where SEBI has reasonable ground to believe that any intermediary or any person
associated with the securities has violated any of the provisions of this Act or the rules
regulations made or directions issued by SEBI thereunder.
Powers of the investigating authority
Power to retain books: The Investigating Authority (IA) may keep in its custody any books,
registers, other documents and record for 6 months. Thereafter, the IA shall return the same
to the person who had produced such books etc. However IA may again call for such books
etc. to him.
Power to examine on oath: The IA may examine on oath, any manager, managing director,
officer and other employee of any intermediary or any person associated with securities
market. For this purpose the IA may require any of those persons to appear before it
personally.
Power to take notes on examination: Notes on any examination on oath shall be made in
writing. The notes shall be read over to the person examined and signed by him. The notes
may be used in evidence against such person in the legal proceedings.

 Seizure of documents by the Investigating Authority (IA):

The IA may take an application to the Magistrate of the First Class for an order for the seizure
of books and papers. Such an application may be made if the IA has reasonable ground to
believe that books, registers, other documents and record of, or relating to, any intermediary
or any person associated with securities market may be destroyed, mutilated, altered,
altered, falsified or secreted.
After considering the application and hearing the IA, the Magistrate may authorise the IA1. To enter, with such assistance as may be required, the places where such books etc.
are kept;
2. To search those places in the manner specified in the order;
3. To seize such books etc. as the IA considers necessary.
However, the Magistrate shall not authorise seizure of books etc. of any listed public
company or a public company which intends to get its securities listed on any recognised
stock exchange unless such company indulges in insider trading or market manipulation. The
search and seizure shall be carried out in accordance with the provisions of the Code of
Criminal Procedure, 1898.
Failure or refusal to comply with the order of inspector in respect of any of the following acts,
without reasonable cause, shall result in imprisonment for a term which may extend to 1 year,
or with fine up to Rs. 1 Crore plus Rs.5 lakhs for every day till the default continues:
1. Production of any book, register, other document and record.
2. Furnishing of any information.
3. Appearing before the IA.
4. Answering any questions put to him.
5. Signing the notes of any examination.
Cease and desist proceedings:sec.11d
Section 11D empowers SEBI to pass an order requiring a person to cease and desist from
committing the violation of the Act or rules made there under. SEBI may pass a cease and
desist order by complying with the following two requirements:
a. SEBI shall cause an inquiry to be made to determine whether any person has violated, or is
likely to violate, any provision of this Act or any rules or regulations made there under.
b. SEBI shall not pass a cease and desist order against any listed company or a public
company which intends to get its securities listed on any recognised stock exchange, unless
it has reasonable ground to believe that such company has indulged in insider trading or
market manipulation.
Prohibition of manipulative and deceptive devices, insider trading etc.: Sec.12a
No person shall directly or indirectly: Use or employ, in connection with the issue, purchase or sale of any securities listed or
proposed to be listed in a recognised stock exchange, any manipulative or deceptive device
or contrivance in contravention of the position of this Act or the rules or the regulations made
there under.
Employ any device, scheme or artifice to defraud with issue or dealing in securities which are
listed or proposed to be listed on a recognised stock exchange;
Engage in any act, practice, course of business which operates or would operate as fraud or
deceit up on any person, in connection with the issue, dealing in securities which are listed or

proposed to be listed on a recognised stock exchange, in contravention of the provisions of

this Act or the rules or the regulations made there under;
Engage in insider trading;
Deal in securities while in possession of material or non-public information or communicate
such material or non-public information to any other person, in a manner which is in
contravention of the provisions of this Act or the rules or the regulations made there under.
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 recognised
stock exchange in contravention of the regulations made under this Act.

Penalty for failure to furnish information,return etc:sec.15a

A person shall be liable to a fine of Rs.100000 per day or Rs.1 Crore whichever is less, if he
fails to:
a. Furnish any document, return or report to the SEBI, as required under the Act, rules or
regulations made there under; or
b. File any return or furnish any information, books or other documents within the time specified
under the Act, rules or regulations made there under; or
c. Maintain the books of account or records as required under the Act, rules or regulations
made there under.
Penalty for failure by any person to enter into agreement with clients:Sec.15b
Any person, who is registered as an intermediary and is required under this Act or any rules
or regulations made there under, to enter in to an agreement with his client, fails to enter in to
such agreement, he shall be liable to a fine of Rs.100000 per day or Rs.1 Crore, whichever is
less.
-----------------------------------------------------------------------------------------------------------------------------------Miscellaneous provisions for penalties
Penalty for failure to redress investors grievances (Sec 15C): If any listed company or
any person, who is registered as an intermediary, after having been called upon by the SEBI
in writing to redress the grievances of investors, fails to redress such grievances within the
time specified by SEBI, such company or intermediary shall be liable to a fine of Rs.100000
per day or Rs.1 Crore, whichever is less.
Penalty for certain defaults in case of Mutual Funds(Sec 15D): A person shall be liable
to a fine of Rs. 100000 per day or Rs. 1 Crore, whichever is less, for any of the following
contraventions:
a. Where he sponsors or carries on any collective investment scheme including mutual
funds, without obtaining certificate of registration as required under the Act, rules or
regulations made thereunder.
b. where he, being registered with the SEBI as a collective investment scheme, including
mutual funds, fails to :I. Comply with the terms & conditions of registration.
II. Make an application for listing of its schemes as provided for in the regulations
governing such listing.
III. Dispatch unit certificates of any scheme in the manner provided in the regulation
governing such dispatch.
IV. Refund the application money paid by the investors within the period specified in
regulation.

V.

Invest money collected by such collective investment schemes in the manner or within
the period specified in the regulation.
Penalty for failure to observe rules and regulations by an asset management company
(Sec 15E): Where any asset management company of a mutual fund registered under this
Act, fails to comply with any of the regulations providing for restrictions on the activities of
such companies, such company shall be liable to a fine of Rs. 100000 per day or Rs.1 Crore,
whichever is less.

Penalty for default in case of stock brokers (Sec. 15f)

A registered stock broker is liable to penalty under section 15F in respect of certain defaults.
Accordingly, if a stock brokera. Fails to issue contract notes in the form and in the manner specified by the stock exchange
of which such broker is a member, he shall be liable to a penalty not exceeding 5 times the
amount for which the contract note was required to be issued by that broker;
b. Fails to deliver any security or fails to make payment of the amount due to the investor in the
manner and within the period specified in the regulations, he shall be liable to penalty of Rs.
1 Lakh for each day during which such failure continues or Rs. 1 Crore, whichever is less;
c. Charges an amount of brokerage which is in excess of the brokerages specified in the
regulations, he shall be liable to a penalty of Rs. 1 Lakh or 5 times the amount of brokerage
charged in excess of the specified brokerage, whichever is higher.
Meaning of insider trading, price sensitive information & penalty (sec.15g)
Meaning of insider: Insider means a person who, is or was connected with the company or
is deemed to have been connected with the company, and who is reasonably expected to
have access to unpublished price sensitive information in respect of securities of a company,
or who has received or has had access to such unpublished price sensitive information.
Meaning of Price Sensitive Information: Price Sensitive Information means any
information which relates directly or indirectly to a company and which if published is likely to
materially affect the price of securities of a company. The following shall be deemed to be
price sensitive information:
a. Periodical financial result of the company.
b. Intended declaration of dividends (both interim & final).
c. Issue or buy-back of securities.
d. Any major expansion plans or execution of new projects.
e. Amalgamation, merger or take over.
f. Disposal of the whole or substantial part of the undertakings.
g. Any significant changes in policies, plans or operations of the company.
Meaning of unpublished: Unpublished means information which is not published by the
company or its agents and is not specific in nature.
Penalty for insider trading: For the following defaults, an insider shall be liable to a penalty
of Rs. 25 Crores or 3 times the amount of profits made out of such default, whichever is
higher.

a. Where he deals in securities of a body corporate listed on any stock exchange, either
on his own behalf or on behalf of any other person, on the basis of any unpublished
price sensitive information.
b. Where he communicates any unpublished price sensitive information to any person,
with or without his request for such information except as required in the ordinary
course of business or under any law.
c. Where he counsels, or procures for any other person to deal in any securities of any
body corporate on the basis of unpublished price sensitive information.

Penalty for non-disclosure of acquisition of shares and takeovers (sec.15h)

For the following defaults, a person shall be liable to a penalty of Rs. 25 Crores or 3 times the
amount of profits made out of such default, whichever is higher.
a. Failure to disclose the aggregate of his shareholding in the body corporate before he
acquires any shares of that body corporate.
b. Failure to make a public announcement to acquire shares at a minimum price.
c. Failure to make a public offer by sending letter of offer to the shareholders of the concerned
company.
d. Failure to make payment of consideration to the shareholders who sold their shares pursuant
to letter of offer.
Penalties-miscellaneous
Penalty for fraudulent and unfair trade practices(Sec 15HA): If any person indulges in
fraudulent and unfair trade practices relating to securities, he shall be liable to a penalty of
Rs.25 Crores or 3 times the amount of profits made out of such practices, whichever is
higher.
Penalty for contravention where no separate penalty has been provided(Sec 15HB): If
any person fails to comply with any provisions of this Act, rules or regulations made
thereunder or directions issued by SEBI for which no separate penalty has been provided, he
shall be liable to a penalty which may extend to Rs. 1 Crore.
Crediting sums realised by way of penalties to Consolidated Fund of India(Sec 15JA):
All sums realised by way of penalties under this Act shall be credited to the Consolidated
Fund of India.
Failure to pay penalty(Sec 24): If any person fails to pay the penalty imposed by the
adjudicating officer or fails to comply with any of his directions or orders, he shall be
punishable witha. Imprisonment for a term which shall not be less than 1 month but which may extend to
10 years; or
b. Fine upto Rs. 25 Crores; or
c. Imprisonment and fine.
Procedure for adjudication(sec 15i and 15j)
Power to adjudicate (Sec. 15I):
Appointment of adjudicating officer: For the purpose of adjudging under Section
15A to 15 H shall appoint any of its officers not below the rank of Division Chief to be
an adjudicating officer an inquiry for the purpose of imposing any penalty.

Opportunity of being heard: The adjudicating officer shall give a reasonable

opportunity of being heard before imposing penalty.
Powers of adjudicating officer: While holding an inquiry the adjudicating officer
shall have power to summon and enforce the attendance of any person acquainted
with the facts & circumstances of the case to give evidence or to produce any
document which in the opinion of the adjudicating officer, may be useful for relevant to
the subject matter of the inquiry, he is satisfied that the person has failed to comply
with any of the provisions of Sec. 15A to 15H, he may impose such penalty as he
thinks fit in accordance with the provisions of any of those sections.
Factors to be taken into account by the adjudicating officer(Sec 15J): While adjudging
the quantum of penalty under the Act, the adjudicating officer shall have due regard to the
following factors:
The amount of disproportionate gain or unfair advantage, wherever quantifiable, made
as a result of the default.
The amount of loss caused to an investor or group of investors as a result of the
default.
The repetitive nature of the default.
Cognisance of offences by courts(Sec 26): No court shall take cognisance of any offence
punishable under this Act or any rules or regulations made thereunder, except on a complaint
made by SEBI.
Jurisdiction to try offences: No court inferior to that of a Court of Session shall try any
offences punishable under this Act.

Appeal to securities appellate tribunal(sec 15t)

Section 15T provides an opportunity to a person aggrieved by an order of SEBI to appeal to
the Securities Appellate Tribunal. Such Tribunal means an Appellate Tribunal established by
the CG by issuing a notification in the official Gazette. The provisions relating to appeal to the
Tribunal are explained as under:
Appealable orders: An appeal shall lie to the Tribunal against the following orders:
a. An order of the adjudicating officer imposing penalty.
b. Any order of SEBI made under SEBI Act or rules or regulations made thereunder.
Non-appealable orders: No appeal can be made to Tribunal against an order made with the
consent of the parties.
Time limit and procedure for filling the appeal: As per SEBI Appellate Tribunal
(Procedure) Rules, 2000, the appeal shall be filed within 45 days of the order. The Tribunal
may condone the delay for sufficient reasons. The appeal shall be made in 3 copies, with
additional copies for each additional respondent. Appeal shall be signed by the authorised
person.
Appeal against the order of Tribunal(Sec 15Z):
a. Any person aggrieved by any decision or order of the Tribunal may file an appeal to
the Supreme Court.
b. The appeal can be filed only on question of law.
c. The appeal shall be filed within 60 days from the date of communication of the order of
the Tribunal.
d. The Supreme Court may, if it is satisfied that the applicant was prevented by sufficient
cause from filling the appeal within the said period , allow it to be filed within a further
period not exceeding 60 days.

Powers of sebi to prevent undesirable transactions in securities

By virtue of the SEBI Act, certain provisions contained in the Securities Contracts
(Regulation) Act, 1956 have been amended with a view of giving power to SEBI to regulate
and prevent undesirable transactions in securities by regulating the business of dealings
therein, by prohibiting options and by providing for certain other matters connected therewith.
The functions of the CG under the Act have been granted to SEBI. These are:
a. Power to call for periodical returns or direct enquiries (Sec. 6).
b. Power to approve the bye-laws of stock exchanges (Sec.9).
c. Power of SEBI to make or amend bye-laws of recognised stock exchanges (Sec. 10).
d. Licensing of dealers in securities in certain areas (Sec.17).
e. Power to compel listing of securities by public companies (Sec. 21) and to punish.
Composition of certain offences(Sec 24a)
Section 24A provides for compounding of offences punishable under the Act, i.e. imposition
of fine in lieu of prosecution. The compounding provisions in an Act reflect the leniency in the
administration of the Act. These provisions are as follows:
Compoundable offences: Only the following offences can be compounded under this
section:
a. Offences punishable with fine.
b. Offences punishable with fine or imprisonment or both.
Time for applying for compounding of offences: An application for compounding of an
offence may be made either before or after the institution of any prosecution, i.e. the
application may be made even during the prosecution.
Authorities for compounding: An offence committed under this Act shall be compounded
by Securities Appellate Tribunal or the Court before which such proceedings are pending.
Power to grant immunity (sec 24b)
Section 24B empowers CG to grant immunity to any person who has committed a
contravention of any provision of the SEBI Act. These provisions are explained as follows:
Conditions for granting immunity:
a. SEBI has made a recommendation to the CG that a person alleged to have violated any of
the provisions of the SEBI Act should be granted immunity from prosecution or imposition of
penalty under the Act.
b. The CG is satisfied that such person has made a full and true disclosure in respect of alleged
violation.
c. The proceedings for the prosecution for any such offence have not been instituted before the
date of receipt of application for grant of such immunity.
d. The CG may grant immunity subject to such conditions as it thinks fit to impose.
Withdrawal of immunity: An immunity granted to a person may at any time, be withdrawn
by the CG, if it is satisfied that such person had, in the course of the proceedings, not
complied with the condition on which the immunity was granted or had given false evidence.
Consequences of withdrawal of immunity: If the immunity granted to a person is
withdrawn by the CG, such person may be tried for the offence of which he appears to have
been guilty in connection with the contravention. Also, he shall become liable to the
imposition of any penalty under the SEBI Act to which he would have been liable, if he had
not been granted such immunity.