Establishment, Functions and Powers of SEBI
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Establishment, Functions and Powers of SEBI
INDEX ! Introduction """""""""""""""""""""""""..3 #! $sta%lishment """""""""""""""""""""""""4-6 Management of &oard """"""""""""""""""..'() • *emoval of mem%er from office """""""""..""""") • Meetings """""""""""""""""""""""") • +! ,owers and -unctions """"""""""""""""""""""7-14 '! onclusion """""""""""""""""""""""""".14 )! &i%liography """""""""""""""""""""""""..15
INTRODUCTION Business Law Project File
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Establishment, Functions and Powers of SEBI /ecurities $xchange &oard of India 0/$&I! was set up in 122 to regulate the functions of securities market. /$&I promotes orderly and healthy development in the stock market %ut initially /$&I was not a%le to exercise complete control over the stock market transactions. With the growth in the dealings of stock markets3 lot of malpractices also started in stock markets such as price rigging3 4unofficial premium on new issue3 and delay in delivery of shares3 violation of rules and regulations of stock exchange and listing requirements. Due to these malpractices the customers started losing confidence and faith in the stock exchange. /o government of India decided to set up an agency or regulatory %ody known as /ecurities $xchange &oard of India 0/$&I!. It was left as a watch dog to o%serve the activities %ut was found ineffective in regulating and controlling them. 5s a result in May 11#3 /$&I was granted legal status. /$&I is a %ody corporate having a separate legal existence and perpetual succession. in 11)3 the /$&I was given additional statutory power %y the 6overnment of India through an amendment to the /ecurities and $xchange &oard of India 5ct3 11#. /$&I was set up with the main purpose of keeping a check on malpractices and protect the interest of investors. It was set up to meet the needs of three groups. These are7( •
Issuers: -or issuers it provides a market place in which they can raise finance fairly
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and easily. Investors7 -or investors it provides protection and supply of accurate and correct
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information. Intermediaries7 -or intermediaries it provides a competitive professional market.
The overall o%jectives of /$&I are to protect the interest of investors and to promote the development of stock exchange and to regulate the activities of stock market. It prevent fraudulent and malpractices %y having %alance %etween self(regulation of %usiness and its statutory regulations. In this project the esta%lishment3 powers and functions of /$&I have %een discussed in detail in accordance with the provisions of the /ecurities and $xchange &oard of India 5ct3 11#.
ESTABLISHMENT Business Law Project File
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Establishment, Functions and Powers of SEBI Chapter 2 of the /$&I 5ct3 11# provides for the esta%lishment and incorporation of the %oard. Section 3 provides that a %oard %y the name of the /ecurities and $xchange &oard of India shall %e esta%lished %y the entral 6overnment with effect from the date notified %y them. It further provides that the %oard shall %e a %ody corporate3 having perpetual s uccession and a common seal3 with power su%ject to the provisions of this 5ct3 to acquire3 hold and dispose of property3 %oth mova%le and immova%le3 and to contract3 and shall3 %y the said name3 sue or %e sued. Sub-section (3) states that the head office of the %oard shall %e at &om%ay. 8owever3 the &oard may esta%lish offices at other places in India.
Managemen "# $e B"a%&'5ccording to section 43 the /$&I is managed %y its mem%ers3 which consists of following7 . 5 chairman who is nominated %y 9nion 6overnment of India. #. Two mem%ers3 i.e.3 :fficers from 9nion -inance Ministry and administration of the ompanies 5ct3 1); 0 of 1);!. +. :ne mem%er from the *eserve &ank of India. '. The remaining five mem%ers are nominated %y 9nion 6overnment of India3 out of them at least three shall %e whole(time mem%ers. The general superintendence3 direction and management of the affairs of the &oard is vested in a &oard of mem%ers3 which may exercise all powers and do all acts and things which may %e exercised or done %y the &oard. The hairman also has powers of general superintendence and direction of the affairs of the &oard and may also exercise all powers and do all acts and things which may %e exercised or done %y that &oard. This section requires that the hairman and the other mem%ers shall %e persons of a%ility3 integrity and standing who have shown capacity in dealing with pro%lems relating to securities market or have special knowledge or experience of law3 finance3 economics3 accountancy3 administration or in any other discipline which3 in the opinion of the entral 6overnment3 shall %e useful to the &oard. Section 5 provides that the term of office and other conditions of service of the hairman and the mem%ers shall %e such as may %e prescri%ed. The entral 6overnment shall have the right Business Law Project File
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Establishment, Functions and Powers of SEBI to terminate the services of the hairman or a mem%er appointed under clause 0d ! of su%( section 0! of section '3 at any time %efore the expiry of the period prescri%ed3 %y giving him notice of not less than three months in writing or three months4 salary and allowances in lieu thereof3 and the hairman or a mem%er3 as the case may %e3 shall also have the right to relinquish his office3 at any time %efore the expiry of the period prescri%ed3 %y giving to the entral 6overnment notice of not less than three months in writing.
Rem"(a) "# mem*e% #%"m "##+,e'Section 6 provides that the entral 6overnment shall remove a mem%er from office if he< ! is3 or at any time has %een3 adjudicated as insolvent= #! is of unsound mind and stands so declared %y a competent court= +! has %een convicted of an offence which3 in the opinion of the entral 6overnment3 involves a moral turpitude= '! has3 in the opinion of the entral 6overnment3 so a%used his position as to render his continuation in office detrimental to the pu%lic interest. ,rovided3 that no mem%er shall %e removed under this clause unless he has %een given a reasona%le opportunity of %eing heard in the matter.
Mee+ng'Section 7 provides the following provisions regarding the meetings of the %oard7( ! The &oard shall meet at such times and places3 and shall o%serve such rules of procedure in regard to the transaction of %usiness at its as may %e provided %y regulations. #! If the hairman he is una%le to attend a meeting of the &oard3 any other mem%er chosen %y the mem%ers present from amongst themselves at the meeting shall preside at the meeting. +! 5ll questions which come up %efore any meeting of the &oard shall %e decided %y a majority votes of the mem%ers present and voting3 and3 in the event of an equality of votes3 the hairman3 or in his a%sence3 the person presiding3 shall have a second or casting vote. Section 7A of the act states that any mem%er3 who is a director of a company and who as such director has any direct or indirect pecuniary interest in any matter coming up for consideration at a meeting of the &oard3 shall3 as soon as3 disclose the nature of his interest at Business Law Project File
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Establishment, Functions and Powers of SEBI such meeting and such disclosure shall %e recorded in the proceedings of the &oard3 and the mem%er shall not take any part in any deli%eration or decision of the &oard with respect to that matter. Section provides that no act or proceeding of the &oard shall %e invalid merely %y reason of < a! any vacancy in3 or any defect in the constitution of3 the &oard= %! 0%! any defect in the appointment of a person acting as a mem%er of the &oard= c! 0c! any irregularity in the procedure of the &oard not affecting the merits of the case. /ection 1 states that the &oard may appoint such other officers and employees as it considers necessary for the efficient discharge of its functions under this 5ct. The term and other conditions of service of officers and employees of the &oard appointed under section 1 shall %e such as may %e determined %y regulations.
.OWERS AND /UNCTIONS Chapter 4 of the /$&I 5ct3 11 deals with powers and functions of the %oard. The ,ream%le of the /ecurities and $xchange &oard of India descri%es the %asic functions of the /ecurities and $xchange &oard of India as to protect the interests of investors in securities and to promote the development of3 and to regulate the securities market and for matters connected
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Establishment, Functions and Powers of SEBI therewith or incidental thereto. /$&I has three functions rolled into one %ody7 quasi( legislative3 quasi(judicial and quasi(executive. It drafts regulations in its legislative capacity3 it conducts investigation and enforcement action in its executive function and it passes rulings and orders in its judicial capacity. Section !! of the 5ct provides the functions and also some powers of the %oard which are listed %elow7( ! It shall %e the duty of the &oard to protect the interests of investors in securities and to promote the development of3 and to regulate the securities market3 %y such measures as it thinks fit. #! Without prejudice to the generality of the foregoing provisions3 the measures referred to therein may provide for< regulating the %usiness in stock exchanges and any other securities markets= registering and regulating the working of stock %rokers3 su%(%rokers3 share transfer agents3 %ankers to an issue3 trustees of trust deeds3 registrars to an issue3 merchant %ankers3 underwriters3 portfolio managers3 investment advisers and such other intermediaries who may %e associated with securities markets in any
manner= registering and regulating the working of the depositories3 participants3 custodians of securities3 foreign institutional investors3 credit rating agencies and such other
intermediaries as the &oard may3 %y notification3 specify in this %ehalf= registering and regulating the working of venture capital funds and collective investment schemes>3 including mutual funds= promoting and regulating self(regulatory organisations= prohi%iting fraudulent and unfair trade practices relating to securities markets= promoting investors4 education and training of intermediaries of securities markets= prohi%iting insider trading in securities= regulating su%stantial acquisition of shares and takeover of companies= calling for information from3 undertaking inspection3 conducting inquiries and audits of the stock exchanges3 mutual funds3 other persons associated with the securities market3 intermediaries and self(regulatory organisations in the securities
market= calling for information and records from any person including any %ank or any other authority or %oard or corporation esta%lished or constituted %y or under any entral or /tate 5ct which3 in the opinion of the &oard3 shall %e relevant to any investigation or inquiry %y the &oard in respect of any transaction in securities=
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Establishment, Functions and Powers of SEBI
calling for information from3 or furnishing information to3 other authorities3 whether in India or outside India3 having functions similar to those of the &oard3 in the matters relating to the prevention or detection of violations in respect of securities laws3 su%ject to the provisions of other laws for the time %eing in force in this regard7 ,rovided that the &oard3 for the purpose of furnishing any information to any authority outside India3 may enter into an arrangement or agreement or understanding with such authority with the prior approval of the
entral 6overnment= performing such functions and exercising such powers under the provisions of the /ecurities ontracts 0*egulation! 5ct3 1); 0'# of 1);!3 as may %e delegated to
it %y the entral 6overnment= levying fees or other charges for carrying out the purposes of this section= conducting research for the a%ove purposes= calling from or furnishing to any such agencies3 as may %e specified %y the &oard3 such information as may %e considered necessary %y it for the efficient discharge
of its functions= performing such other functions as may %e prescri%ed. +! The &oard may take measures to undertake inspection of any %ook3 or register3 or other document or record of any listed pu%lic company or a pu%lic company which intends to get its securities listed on any recognised stock exchange where the &oard has reasona%le grounds to %elieve that such company has %een indulging in insider trading or fraudulent and unfair trade practices relating to securities market. '! The &oard shall have the same powers as are vested in a civil court under the ode of ivil ,rocedure3 1?2 0) of 1?2!3 while trying a suit3 in respect of the following matters3 namely 7< the discovery and production of %ooks of account and other documents3 at such
place and such time as may %e specified %y the &oard= summoning and enforcing the attendance of persons and examining them on
oath= inspection of any %ooks3 registers and other documents of any person referred to
in section #3 at any place= inspection of any %ook3 or register3 or other document or record of the company= issuing commissions for the examination of witnesses or documents. )! The &oard may3 %y an order3 for reasons to %e recorded in writing3 in the interests of investors or securities market3 take any of the following measures3 either pending investigation or inquiry or on completion of such investigation or inquiry3 namely7< suspend the trading of any security in a recognised stock exchange=
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restrain persons from accessing the securities market and prohi%it any person
associated with securities market to %uy3 sell or deal in securities= suspend any office(%earer of any stock exchange or self(regulatory organisation
from holding such position= impound and retain the proceeds or securities in respect of any transaction which
is under investigation= attach3 after passing of an order on an application made for approval %y the @udicial Magistrate of the first class having jurisdiction3 for a period not exceeding one month3 one or more %ank 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 5ct3 or the rules or the regulations made thereunder 7 ,rovided that only the %ank account or accounts or any transaction entered therein3 so far as it relates to the proceeds actually involved in violation of any of the provisions of this 5ct3 or the rules or the regulations made thereunder
shall %e allowed to %e attached= 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 &oard shall3 either %efore or after passing such orders3 give an opportunity of hearing to such intermediaries or persons concerned.
Section !!A empowers the &oard to regulate or prohi%it issue of prospectus3 offer document or advertisement soliciting money for issue of securities. It provides that the &oard may3 for the protection of investors3< ! specify3 %y regulations< the matters relating to issue of capital3 transfer of securities and other matters incidental thereto= and the manner in which such matters shall %e disclosed %y the companies= #! %y general or special orders< prohi%it any company from issuing prospectus3 any offer document3 or
advertisement soliciting money from the pu%lic for the issue of securities= specify the conditions su%ject to which the prospectus3 such offer document or advertisement3 if not prohi%ited3 may %e issued.
The &oard may specify the requirements for listing and transfer of securities and other matters incidental thereto.
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Establishment, Functions and Powers of SEBI Section !!" further gives power to the &oard to issue directions. If after making or causing to %e made an enquiry3 the &oard is satisfied that it is necessary3< i. ii.
in the interest of investors3 or orderly development of securities market= or to prevent the affairs of any intermediary or other persons referred to in section # %eing conducted in a manner detrimental to the interest of investors or securities
iii.
market= or to secure the proper management of any such intermediary or person3 it may issue such directions3< to any person or class of persons referred to in section #3 or associated with the
securities market= or to any company in respect of matters specified in section 53 as may %e appropriate in the interests of investors in securities and the securities market.
The power to issue directions under this section includes the power to direct any person3 who made profit or averted loss %y indulging in any transaction or activity in contravention of the provisions of this 5ct or regulations made thereunder3 to disgorge an amount equivalent to the wrongful gain made or loss averted %y such contravention. 5lso the amount disgorged3 pursuant to a direction issued3 under this section is to %e credited to the Investor ,rotection and $ducation -und esta%lished %y the &oard and such amount shall %e utilised %y the &oard in accordance with the regulations made under this 5ct. Section !!C provides the %oard with the powers regarding investigation3 It states7( ! Where the &oard has reasona%le ground to %elieve that< the transactions in securities are %eing dealt with in a manner detrimental to the
investors or the securities market= or any intermediary or any person associated with the securities market has violated any of the provisions of this 5ct or the rules or the regulations made or directions issued %y the &oard thereunder3
it may3 at any time %y order in writing3 direct any person 0hereafter in this section referred to as the Investigating 5uthority! specified in the order to investigate the affairs of such intermediary or persons associated with the securities market and to report thereon to the &oard. #! It shall %e the duty of every manager3 managing director3 officer and other employee of the company and every intermediary or every person associated with the securities
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Establishment, Functions and Powers of SEBI market to preserve and to produce to the Investigating 5uthority or any person authorised %y it in this %ehalf3 all the %ooks3 registers3 other documents and record of3 or relating to3 the company or3 as the case may %e3 of or relating to3 the intermediary or such person3 which are in their custody or power. +! The Investigating 5uthority may require any intermediary or any person associated with securities market in any manner to furnish such information to3 or produce such %ooks3 or registers3 or other documents3 or record %efore him or an y person authorised %y it in this %ehalf as it may consider necessary if the furnishing of such information or the production of such %ooks3 or registers3 or other documents3 or record is relevant or necessary for the purposes of its investigation. '! The Investigating 5uthority may keep in its custody any %ooks3 registers3 other documents and record for six months and thereafter shall return the same to any intermediary or any person associated with securities market %y whom or on whose %ehalf the %ooks3 registers3 other documents and record are produced 7 ,rovided that the Investigating 5uthority may call for any %ook3 register3 other document and record if they are needed again and further that if the person on whose %ehalf the %ooks3 registers3 other documents and record are produced requires certified copies of the %ooks3 registers3 other documents and record produced %efore the Investigating 5uthority3 it shall give certified copies of such %ooks3 registers3 other documents and record to such person or on whose %ehalf the %ooks3 registers3 other documents and record were produced. )! 5ny person3 directed to make an investigation under su%(section 0!3 may examine on oath3 any manager3 managing director3 officer and other employee of any intermediary or any person associated with securities market in any manner3 in relation to the affairs of his %usiness and may administer an oath accordingly and for that purpose may require any of those persons to appear %efore it personally. ;! If any person fails without reasona%le cause or refuses< to produce to the Investigating 5uthority or any person authorised %y it in this %ehalf any %ook3 register3 other document and record which is his duty to
produce= or to furnish any information which is his duty to furnish= or to appear %efore the Investigating 5uthority personally when required to do so or to answer any question which is put to him %y the Investigating 5uthority= or to sign the notes of any examination.
he shall %e punisha%le with imprisonment for a term which may extend to one year3 or with fine3 which may extend to one crore rupees3 or with %oth3 and also with a Business Law Project File
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Establishment, Functions and Powers of SEBI further fine which may extend to five lakh rupees for every day after the first during which the failure or refusal continues. A! Botes of any examination shall %e taken down in writing and shall %e read over to3 or %y3 and signed %y3 the person examined3 and may thereafter %e used in evidence against him. 2! Where in the course of investigation3 the Investigating 5uthority has reasona%le ground to %elieve that the %ooks3 registers3 other documents and record of3 or relating to3 any intermediary or any person associated with securities market in any manner3 may %e destroyed3 mutilated3 altered3 falsified or secreted3 the Investigating 5uthority may make an application to the Magistrate or @udge of such designated court in Mum%ai3 as may %e notified %y the entral 6overnment for an order for the seiCure of such %ooks3 registers3 other documents and record. 1! The authorised officer may requisition the services of any police officer or any officer of the entral 6overnment3 or of %oth3 to assist him for all or any of the purposes and it shall %e the duty of every such officer to comply with such requisition. ?! 5fter considering the application and hearing the Investigating 5uthority3 if necessary3 '?the Magistrate or @udge of the Designated ourt> may3 %y order3 authorise the Investigating 5uthority E to enter3 with such assistance3 as may %e required3 the place or places where such
%ooks3 registers3 other documents and record are kept= to search that place or those places in the manner specified in the order= and to seiCe %ooks3 registers3 other documents and record3 it considers necessary for the purposes of the investigation7
,rovided that the Magistrate or @udge of the Designated ourt shall not authorise seiCure of %ooks3 registers3 other documents and record3 of any listed pu%lic company or a pu%lic company which intends to get its securities listed on any recognised stock exchange unless such company indulges in insider trading or market manipulation. ! The Investigating 5uthority shall keep in its custody the %ooks3 registers3 other documents and record seiCed under this section for such period not later than the conclusion of the investigation as it considers necessary and thereafter shall return the same to the company or the other %ody corporate3 or3 as the case may %e3 to the managing director or the manager or any other person3 from whose custody or power they were seiCed and inform the Magistrate or @udge of the Designated ourt of such return7 Business Law Project File
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Establishment, Functions and Powers of SEBI ,rovided that the Investigating 5uthority may3 %efore returning such %ooks3 registers3 other documents and record as aforesaid3 place identification marks on them or any part thereof. Fastly3 Section !!# vests the %oard with the power to cease and desist proceedings. If the &oard finds3 after causing an inquiry to %e made3 that any person has violated3 or is likely to violate3 any provisions of this 5ct3 or any rules or regulations made thereunder3 it may pass an order requiring such person to cease and desist from committing or causing such violation7 ,rovided that the &oard shall not pass such order in respect of any listed pu%lic company or a pu%lic company which intends to get its securities listed on any recognised stock exchange unless the &oard has reasona%le grounds to %elieve that such company has indulged in insider trading or market manipulation. 5ll these sections i.e. section to D3 $ncompass all the statutory functions and powers of the /$&I.
CONCLUSION It is clear that the /ecurities and $xchange &oard of India 0/$&I! is the regulator for the securities market in India. Initially /$&I was a non(statutory %ody without any statutory power. It was given statutory powers in 11# with /$&I 5ct 11# %eing passed %y the Indian ,arliament. The 5ct not only provided with its detailed esta%lishment %ut also listed the functions to %e performed %y /$&I and vested it with vast powers necessary for discharging all its functions in a proficient manner. The overall o%jectives of /$&I are to protect the interest of investors and to promote the development of stock exchange and to regulate the activities of stock market3 to regulate the activities of stock exchange, to protect the rights of investors and ensuring safety to their investment3 to prevent fraudulent and malpractices %y having %alance %etween self(regulation of %usiness and its statutory regulations , to regulate and develop a code of conduct for intermediaries such as %rokers3 underwriters3 etc. The /$&I performs functions to meet its
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Establishment, Functions and Powers of SEBI o%jectives. To meet three o%jectives /$&I has three important functions. These are7 ,rotective functions3 Developmental functions and *egulatory functions. -or the discharge of its functions efficiently3 /$&I has %een vested with the %asic powers to prove %yGlaws of stock exchanges3 to require the stock exchange to amend their %yGlaws.3 inspect the %ooks of accounts and call for periodical returns from recogniCed stock exchanges3 inspect the %ooks of accounts of financial intermediaries3 compel certain companies to list their shares in one or more stock exchanges and registration %rokers.
BIBLIOGRA.H0
http7HHcaknowledge.inHse%i(overview(history(powers(functions(responsi%ilitiesH3
?(#?;3 ?7?? am. http7HHwww.yourarticleli%rary.comHeducationHse%i(the(purpose(o%jective(and(
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functions(of(se%iH2A;#H3 ?1(?(;3 ?7+? am. http7HHwww.se%i.gov.inHse%iwe%HstpagesHa%outse%i.jsp3 ?1(?(;3 7) am. http7HHwww.%usiness(standard.comHsearchJtypeKnewsLqK/e%i3 ?1(?(;3 7)) am.
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