SEBI 1992

Introduction
The Securities and Exchange Board of India (SEBI) was constituted as the regulator of capital markets
by the Government of India on 12th April 1988 under a resolution of the Government of India.
Initially SEBI was a non-statutory body without any statutory power.

During this period, the securities markets in India were governed three principal Acts:

(a) The Capital Issues (Control) Act, 1947, which restricted issuer’s access to the securities market
and controlled the pricing of issues.

(b) The Companies Act, 1956 (now the Companies Act, 2013), which sets out the code of conduct for
the corporate sector in relation to issue, allotment and transfer of securities, and disclosures to be
made in public issues, and

(c) The Securities Contracts (Regulation) Act, 1956, which provides for regulation of transactions in
securities through control over stock exchanges.

SEBI Act, 1992 was enacted to empower SEBI with statutory powers for:

(1) protecting the interests of investors in securities,

(2) promoting the development of the securities market, and

(3) regulating the securities market.

Its regulatory jurisdiction extends over corporate in the issuance of capital and transfer of securities,
in addition to all intermediaries and persons associated with the securities market in the interest of
investors or of orderly development for securities market and can conduct enquiries, audit 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.

The SEBI Act, 1992 with 7 Chapters and 35 Sections, governs all the Stock Exchanges and the
securities transactions in India.

The Securities Laws (Amendment) Act, 2014

The Securities Laws (Amendment) Act, 2014 aims to amend and plug the existing loopholes in three
cardinal legislations controlling the securities market transactions in India, namely the Securities and
Exchange Board of India (SEBI) Act, 1992, the Securities Contracts (Regulation) Act, 1956 and the
Depositories Act, 1996. The Act was passed by the Parliament in the first week of August, 2014 after
which it received the assent of the President on 22 August 2014 and was simultaneously published in
the official gazette to bring the Securities Law (Amendment) Act, 2014 into force.

The Amended Act provides more teeth to the SEBI as follows:

(a) The SEBI powers have been widened and sharpened under the Act. This includes, calling for
information and records from any person including any bank or any other authority or board or
corporation established or constituted by or under any Central or State Act.

(b) Any pooling of funds under any scheme or arrangement, which is not registered with SEBI or is
not covered under the SEBI Act, involving a corpus amount of ` 1000 million or more shall be
deemed to be a collective investment scheme.
(c) The amount disgorged, pursuant to a direction issued, under Section 11B of SEBI Act 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 Protection and Education Fund established by SEBI
and such amount shall be utilised by the SEBI in accordance with the regulations made under the
Act.

(d) The power to issue directions under Section 11B of that SEBI Act, 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 there under, to disgorge an amount equivalent to the wrongful gain made or loss averted by
such contravention.

(e) If a person fails to pay the penalty imposed by the adjudicating officer or fails to comply with any
direction of SEBI for refund of monies or fails to comply with a direction of disgorgement order
issued under Section 11B or fails to pay any fees due to the Board, the Recovery Officer may proceed
to recover from such person the amount by one or more of the following modes, namely:

(i) attachment and sale of the person’s movable property.

(ii) attachment of the person’s bank accounts.

(iii) attachment and sale of the person’s immovable property.

(iv) arrest of the person and his detention in prison.

(v) appointing a receiver for the management of the person’s movable and immovable properties.

PREAMBLE OF SEBI

The Preamble of the Securities and Exchange Board of India describes the basic functions of the
Securities and Exchange Board of India as:

“…..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.” In 1995,
the SEBI was given additional statutory power by the Government of India through an amendment
to the Securities and Exchange Board of India Act, 1992. SEBI has to be responsive to the needs of
three groups, which constitute the market:

(i) the issuers of securities.

(ii) the investors, and

(iii) the market intermediaries.

SEBI has three functions rolled into one body:

quasi-legislative,

quasi-judicial and

quasi-executive.

The management of the Board is mentioned in Section 4 of the Act. The Board shall consist of the
following members, namely:

(a) a Chairman.
(b) two members from amongst the officials of the Ministry of the Central Government dealing with
Finance and administration of the Companies Act, 2013.

(c) one member from amongst the officials of the Reserve Bank.

(d) The remaining five other members shall be appointed by the Central Government of whom at
least three shall be the whole time members.

The functions of the securities Exchange Board of India has been dealt in Section 11. Sub-Section (1)
of Section 11 declares that it shall be the duty of the Securities Exchange Board of India:

(a) to protect the interest of investors in securities, and

(b) to promote the development of and

(c) to regulate the securities market by such measures as the Board thinks fit and

(d) for matters connected therewith and incidental thereto.

The Board is mainly entrusted with two main functions, namely:

(1) Regulatory functions and

(2) Developmental functions.

a) Regulatory functions

The Board is responsible for:

1) regulating the business in stock exchanges and any other securities markets.

2) registering and regulating the working 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.

3) registering and regulating the working of the depositories, participants, custodians of securities,
foreign institutional investors, credit rating agencies and such other intermediaries as the Board
may, by notification, specify in this behalf.

4) registering and regulating the working of venture capital funds and collective investment
schemes, including mutual funds.

5) promoting and regulating self-regulatory organizations.

6) prohibiting fraudulent and unfair trade practices relating to securities markets.

7) promoting investors’ education and training of intermediaries of securities markets.

8) prohibiting insider trading in securities.

9) regulating substantial acquisition of shares and take-over of companies.

10) calling for information from, undertaking inspection, conducting inquiries and audits of the stock
exchanges, mutual funds, other persons associated with the securities market intermediaries and
self- regulatory organisations in the securities market.
11) calling for information and record from any bank or any other authority or board or corporation
established or constituted by or under any Central, State or Provincial Act in respect of any
transaction in securities which is under investigation or inquiry by the Board.

12) performing such functions and exercising such powers under the provisions of the Securities
Contracts (Regulation) Act, 1956, as may be delegated to it by the Central Government.

13) levying fees or other charges for carrying out the purposes of this Section.

14) conducting research for the above purposes.

15) calling from or furnishing to any such agencies, as may be specified by the Board, such
information as may be considered necessary by it for the efficient discharge of its functions, and

16) performing such other functions as may be prescribed.

b) Developmental Functions

1) Promoting investors’ education.

2) Training of intermediaries.

3) Conducting research and publishing information useful to all market participants.

4) Promotion of fair practices.

5) Promotion of self regulatory organizations.

POWER

Beside these above mentioned functions, the Board may take measures to undertake inspection of
any book or register or any other document or record of any listed public company which intends to

get its securities listed on any recognised stock exchange where the Board has reasonable grounds
to believe that such company has been indulging in insider trading or fraudulent and unfair trade
practices relating to securities market.

a. The Board shall also have the power of a civil court. Sub-Section (3) of Section 11 says that the
Board shall have the same powers as are vested in a civil court under the Civil Procedure Code, 1908
(5 of 1908), while trying suit in respect of the following matters:

1) the discovery and production of books of account and other documents, at such place and such
time as may be specified by the Board.

2) summoning and enforcing the attendance of persons and examining them on oath.

3) inspection of any books, registers and other documents of any person referred to in Section 12, at
any place.

4)inspection of any book, or register, or other document or record of the company referred to in
Sub-Section (2A).

5) issuing commissions for the examination of witnesses or documents.

b. In addition to the above mentioned powers, the Board may, by an order, in writing, in the interest
of investors or securities market, take any of the following measures, either pending investigation or
inquiry or inquiry or on completion of such investigation or inquiry, namely:
1) suspend the trading of any security in a recognised stock exchange.

2) restrain persons from accessing the securities market and prohibit any person associated with
securities market to buy, sell or deal in securities.

3) suspend any office-bearer of any stock exchange or self- regulatory organisation from holding
such position.

4) impound and retain the proceeds or securities in respect of any transaction which is under
investigation.

5) attach, after passing of an order on an application made for approval by the Judicial Magistrate of
the first class having jurisdiction, for a period not exceeding one month, one or more bank account
or accounts of any intermediary or any person associated with the securities market in any manner
involved in violation of any of the provisions of this Act, or the rules or the regulations made there
under. Provided that only the bank account or accounts or any transaction entered therein, so far as
it relates to the proceeds actually involved in violation of any of the provisions of this Act, or the
rules or the regulations made there under shall be allowed to be attached.

6) direct any intermediary or any person associated with the securities market in any manner not to
dispose of or alienate an asset forming part of any transaction which is under investigation. The
Board before passing any of the above orders shall give an opportunity of being heard to such
intermediaries or persons concerned.

c. Further, the Securities Exchange Board of India has also the following powers:

1) Power to call periodical returns from recognized stock exchanges.

2) Power to compel listing of securities by public companies.

3) Power to levy fees or other charges for carrying out the purposes of regulation.

4) Power to call information or explanation from recognized stock exchanges or their members.

5) Power to grant approval to bye-laws of recognized stock exchanges.

6) Power to control and regulate stock exchanges.

7) Power to direct enquiries to be made in relation to affairs of stock exchanges or their members.

8) Power to make or amend bye-laws of recognized stock exchanges.

9) Power to grant registration to market intermediaries.

10) Power to declare applicability of Section 17 of the Securities Contract (Regulation) Act 1956, in
any State or area, to grant licenses to dealers in securities.

d. As the primary object of the SEBI is the protection of the investors, accordingly Section 11A gives
the power to Board to regulate or prohibit the issue of prospectus, offer document or advertisement
soliciting money for issue of securities. For the protection of investors the Board may specify by
regulations:

1) the matters relating to issue of capital, transfer of securities and other matters incidental thereto,
and
2) the manner in which such matters shall be disclosed by the companies; and by general or special
orders:

(a) prohibit any company from issuing prospectus, any offer document, or advertisement soliciting
money from the public for the issue of securities.

(b) specify the conditions subject to which the prospectus, such offer document or advertisement, if
not prohibited, may be issued.

The Board may also specify the requirements for listing and transfer of securities and any other
matter incidental thereto. The Board is also having power to issue directions to any such persons or
any company.

e. Section 11C deals with investigation power of the Board. Sub-Section (1) says that where the
Board has reasonable ground to believe that:

1) the transactions in securities are being dealt with in a manner detrimental to the investors or the
securities market, or

2) any intermediary or any person associated with the securities market has violated any of the
provisions of this Act or the rules or the regulations made or directions issued by the Board there
under, the Board may, at any time by order in writing, direct any person specified in the order to
investigate the affairs of such intermediary or persons associated with the securities market and to
report thereon to the Board.

It shall be the duty of every manager, managing director, officer and other employee of the company
and every intermediary or every person associated with the securities market, to produce to
Investigating Authority or any other person authorised by the Board, all the books, registers, other
documents and record of or relating to the company or relating to the intermediary. The
Investigating Authority may require any intermediary or any person associated with securities
market in any manner to furnish such information to, or produce such books, or registers, or other
documents, or record before it or any person authorised by it in this behalf as it may consider
necessary if the furnishing of such information or the production of such books, or registers, or other
documents, or record is relevant or necessary for the purposes of its investigation. The Investigating
Authority may keep in its custody any books, registers, other documents and record produced for six
months and thereafter shall return the same to any intermediary or any person associated with
securities market by whom or on whose behalf the books, registers, other documents and record are
produced. It is also provided that the Investigating Authority may call for any book, register, other
document and record if they are needed again. It is provided further that if the person on whose
behalf the books, registers, other documents and record are produced requires certified copies of
the books, registers, other documents and record produced before the Investigating Authority, it
shall give certified copies of such books, registers, other documents and record to such person or on
whose behalf the books, registers, other documents and record were produced.

f. If any person fails without reasonable cause or refuses:

1) to produce to the Investigating Authority or any person authorised by it in this behalf any book,
register, other document and record which is his, or

2) to furnish any information which is his duty to furnish, or

3) to appear before the Investigating Authority personally when required to do so or to answer any
question which is put to him by the Investigating Authority, or
4) to sign the notes of any examination, he shall be punishable with imprisonment for a term which
may extend to one year or with fine, which may extend to one crore rupees, or with both, and also
with a further fine which may extend to five lakh rupees for every day after the first during which the
failure or refusal continues.

Power to make rules and regulations.

By virtue of the powers conferred under Section 29 & 30 of the Act, the SEBI is empowered to make
rules and regulations. In this context, the SEBI has framed rules under the Act and also issued a
number of regulations, guidance notes, circulars, notifications and clarifications etc., from time to
time.