Acknowledgement

I would like to convey my heartfelt gratitude to Ms. Ekta Rose for his tremendous support and
assistance in the completion of my project. I would also like to thank our HOI. The completion
of the project would not have been possible without their help and insights.

~ Simran Joshi

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Table of Contents
Acknowledgement..........................................................................................................................1

SEBI................................................................................................................................................3

Reasons for the Establishment of SEBI...................................................................................4

Purpose and Role of SEBI.........................................................................................................4

Investors..................................................................................................................................5

Organizational Structure of SEBI............................................................................................5

Functions of SEBI......................................................................................................................6

 Protective Function.........................................................................................................6

 Regulatory Function.......................................................................................................7

 Development Function....................................................................................................7

Objectives of SEBI.....................................................................................................................7

Features of SEBI........................................................................................................................8

 Quasi-Judicial..................................................................................................................8

 Quasi-Legislative.............................................................................................................8

 Quasi-Executive...............................................................................................................9

SEBI Act.........................................................................................................................................9

Features and Regulations of the Act........................................................................................9

Scope of Act..............................................................................................................................10

Advantages............................................................................................................................11

SEBI v. Sahara..........................................................................................................................12

Conclusion.................................................................................................................................14

Bibliography.................................................................................................................................15
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Page 3
Introduction
The Securities and Exchange Board of India (SEBI) stands as a beacon of regulatory oversight
within the realm of India's financial markets. Established in 1988 as a non-statutory body, SEBI
was granted statutory powers in 1992 through the enactment of the SEBI Act. Since then, it has
played a pivotal role in fostering transparency, integrity, and investor confidence in India's
capital markets.

SEBI's mandate encompasses a wide array of responsibilities, ranging from regulating stock
exchanges and intermediaries to promoting fair practices and protecting the interests of investors.
With its vigilant oversight, SEBI strives to maintain orderly and efficient markets while ensuring
compliance with regulatory norms and standards.

In this assignment, we delve into the multifaceted functions of SEBI, examining its regulatory
framework, enforcement mechanisms, and initiatives aimed at fostering market development and
investor protection. By understanding SEBI's role in shaping India's capital markets, we gain
insight into the challenges and opportunities inherent in maintaining a robust and resilient
financial ecosystem.

SEBI
SEBI is also known as the Security and Exchange Board of India was established on 12 April
1992 through the SEBI Act, 1992. It was a non-statutory body established to regulate the
securities market. The headquarters of the board is situated in Bandra Kurla Complex, Mumbai.
SEBI helps in regulating the Indian Capital Market by protecting the interest of investors and
establishing the rules and regulations for the development of the capital market.

SEBI or the Security and Exchange Board of India is a regulatory body controlled by the
Government of India to regulate the capital and security market 1. Before the Security and
Exchange Board of India, the Controller of Capital Issues was the regulating body to regulate the
market which was controlled by the Capital Issues (Control) Act, 1947.
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1
Dewani, M.D., ―Investors without Protection‖, Economic and Political Weekly, October, 3, 1987.
Majorly, SEBI controls the issuers of securities, the investors and the market intermediaries. The
Board draft regulations and statutes under its legislative authority, also pass rulings and orders
under its judicial capacity and operate investigations in its executive limits. SEBI works as a
barrier to avoid malpractices related to the stock market by establishing a code of conduct and
promoting the healthy functioning of the stock exchange. Initially, SEBI didn’t have the
authority to regulate the stock exchange, but in 1992 the Union Government gave statutory
powers to SEBI through the SEBI Act, 1992.

Reasons for the Establishment of SEBI

During the fall of the 1970s and the rise of the 1980s, the people of India were preferring to work
in the Capital Market as the market was trending 2. Without any authority, problems like
unofficial private placements, the rigging of prices, unofficial self-styled merchant bankers
started violating the rules and regulations of the stock exchange which caused delays in the
delivery of shares.

The Government felt an immediate need to establish a regulatory body to regulate its working
and to find solutions for all the problems the market was going through, as the people were
losing interest in the market3. This led to the establishment of the Security and Exchange Board
of India.

Purpose and Role of SEBI

SEBI helps in creating a healthy environment to facilitate an effective mobilization between the
market participants and investors4. It helps in locating the resources with the help of the
securities market. SEBI establish rules and regulations, policy framework and infrastructure to
meet the needs of the market. 5

2
[Link]
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3
Chandrasekhar C.P. and Jayati Ghosh (2000), Monetary Policy, Post-Reforms‘, Business Line, September5, Page 6.
4
Gupta,L.C.,―ChallengesbeforeSecuritiesandExchangeBoardofIndia‖,EconomicandPolitical Weekly, March
23,1996.
The financial market majorly comprises of three groups5:

The Issuer of Securities

Issuers are the group that works in the corporate department to easily raise funds from the
various sources of the market. So, SEBI helps the issuers by providing them a healthy and open
environment to work efficiently6.

Investors
The investors are the soul of the market as they keep the market alive by providing accurate
supplies, correct information, and protection to the people on a daily basis. SEBI helps investors
by creating a malpractice free environment to attract and protect the money of the people who
invested in the market.

Financial Intermediaries
The intermediaries are the people who act as middlemen between the issuers and the investors.
SEBI helps in creating a competitive professional market which gives a better service to the
issuers and the investors. They also provide efficient infrastructure and secured financial
transactions.

Organizational Structure of SEBI

The members of the Security and Exchange Board of India are:

 The Chairman who is appointed by the Union Government of India.

 Two members who are selected from the officers of the Union Finance Ministry.
 One member who is appointed from the Reserve Bank of India.
 The other five members are appointed by the Union Government of India, out of five
three must be whole-time members.
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5
Handsa, Sanjiv K and Partha Ray., BSE and Nasdaq, Globalisation, Information Technology and Stock Prices,
Page

Economic and Political Weekly, Feb. 2, 2002 15. RBI Bulletins.

6
Handsa, Sanjiv Kand Partha Ray.,―BSE andNasdaq,Globalisation,InformationTechnologyand Stock
Prices‖,Economic andPolitical Weekly,Feb.2,2002
Dr. S.A. Dave was the first Chairman of SEBI who was appointed on 10th April 1988. Ajay
Tyagi is the present Chairman appointed on 10th February 2017 replacing U K Sinha.

Functions of SEBI
SEBI basically protects the interest of the investors in the security market, promotes the
development of the security market and regulates the business 7. The functions of the Security and
Exchange Board of India can primarily be categorized into three parts:

 Protective Function
Protective functions are used to protect the interest of investors and other financial participants.
These functions are:

 Prevent Insider Trading: When the people working in the market like director, promoters
or employees working in the company starts to buy or sell the securities because they
have access to the confidential price which results in affecting the price of the security is
known as insider trading. SEBI restricted companies to buy their own shares from the
secondary market and SEBI also regulates regular check-ups to prevent insider trading
and avoid malpractices.
 Checks price rigging: The malpractices which create unreasonable fluctuations in the
price of the securities with the help of increasing or decreasing the market price of stocks
which results in an immense loss for the investors or traders are known as price rigging.
To prevent price rigging, SEBI keeps active surveillance on the factors which can
promote price rigging.
 Promotes fair trade practices: SEBI established rules and regulations and a certain code of
conduct in the securities market to restrict fraudulent and unfair trade practices.
 Providing awareness/financial education for investors: SEBI conducts seminars both
online and offline to educate the investors about insights into the financial market and
money management.
7

 Regulatory Function
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7
Chandrasekhar C.P. and Jayati Ghosh (2000), ‗Monetary Policy, Post-Reforms‘, Business Line, September5,
Page6.
Regulatory functions are generally used to check the functioning of the financial business in the
market. They establish rules to regulate the financial intermediaries and corporates for the
efficiency of the market. These functions are:

 SEBI designed guidelines and code of conduct for efficient working of financial
intermediaries and corporate.
 Established rules for taking over a company.
 Conducts regular inquiries and audits of stock exchanges.
 Regulates the process of mutual funds.
 Registration of brokers, sub-brokers, and merchant bankers is controlled by SEBI.
 Levying of fees is regulated by SEBI.
 Restrictions on private placement.

 Development Function
The development functions are the steps taken by SEBI to improve the security of the market
through technology. The functions are:

 By providing training sessions to the intermediaries of the market.

 By promoting fair trading and restrictions on malpractices of any kind.
 By introducing the DEMAT format.
 By promoting self-regulating organizations.
 By introducing online trading through registered stock brokers.
 By providing discount brokerage.

Objectives of SEBI
The objectives of SEBI are:

 Protection of investors: The primary objective of SEBI is to protect the rights and
interests of the people in the stock market by guiding them to a healthy environment and
protecting the money involved in the market.
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  Prevention of malpractices: The main objective for the formation of SEBI was to prevent
fraud and malpractices related to trading and to regulate the activities of the stock
exchange.
 Promoting fair and proper functioning: SEBI was established to maintain the functioning
of the capital market and to promote functioning of the stock exchange. They are ordered
to keep eyes on the activities of the financial intermediaries and regulate the securities
industry efficiently.
 Establishing Balance: SEBI has to maintain a balance between the statutory regulation
and self-regulation of the securities industry.
 Establishing a code of conduct: SEBI is required to develop and regulate a code of
conduct to avoid frauds and malpractices caused by intermediaries such as brokers,
underwriters and other people.

Features of SEBI
Sebi is an organization that is responsible for maintaining an environment that is free from
malpractices to restore the confidence of the general public who invest their hard-earned money
in the market. SEBI controls the bylaws of every stock exchange in the country. SEBI keeps an
eye on all the books of accounts related to the stock exchange and financial intermediaries to
check their irregularities. The features of the Security and Exchange Board of India are given
below:

 Quasi-Judicial
SEBI is allowed to conduct hearings and can pass judgments on unethical cases and fraudulent
trade practices. This feature of SEBI helps to protect transparency, accountability, reliability, and
fairness in the capital market.

 Quasi-Legislative
SEBI is allowed to draft legislatures with respect to the capital market. SEBI drafts rules and
regulations to protect the interests of the investors. For eg: SEBI LODR or Listing Obligation
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and Disclosure Requirements. This helps in consolidating and streamlining the provisions of
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existing listing agreements for several segments of the financial market like equity shares. This
helps in protecting the market from malpractices and fraudulent trading activities happening at
the bay.

 Quasi-Executive
SEBI covers the implementation of the legislation. They are allowed to file a complaint against
any person who violates their rules and regulations. They also have the power to inspect all the
books and records to check for wrongdoings.

SEBI Act
The Parliament established the Securities and Exchange Board of India Act,1992 or SEBI Act,
1992 to regulate and develop the securities market in India. It was further amended to meet the
changes in the developing requirements of the securities market.

Features and Regulations of the Act

Sebi is an organization that is responsible for maintaining an environment that is free from
malpractices to restore the confidence of the general public who invest their hard-earned money
in the market8. SEBI controls the bylaws of every stock exchange in the country. SEBI keeps an
eye on all the books of accounts related to the stock exchange and financial intermediaries to
check their irregularities. SEBI Act defines and gives powers to the body. The SEBI Act is
divided into seven chapters that provide the rules and regulations associated with the capital
market.

 The First Chapter is an introductory or preliminary chapter of the Act which provides the
title, extent, and definitions of the terms used in the Act.
 The Second Chapter is the establishment of the Securities and Exchange Board of India.
This chapter deals with management, employees, meetings, and the office of the board.
This provides the necessary details of the board established by this Act.
 The Third Chapter is the transfer of assets, liabilities, etc. of the existing Security and
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Exchange Board to the Board, which means it declares the provisions to be used to
transfer the assets in the case of the formation of a new board.
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[Link],(2009)“FinancialManagement”,Vikaspublishing,NewDelhi
  The Fourth Chapter is the powers and functions of the Board. This chapter helps in
mentioning the powers and functions of the board which are given by the Act. The Board
is bound to follow the instructions given by the act and is not allowed to exploit their
powers.
 The Fifth Chapter is the Registration Certificate. It deals with the documentation involved
in the registration of the stockbrokers, sub-brokers, and share transfer agents, etc.
 The Sixth Chapter is finance, accounts, and audits. This chapter controls all the grants
given by the Central Government, funds and accounts, to ensure the productivity of the
board as well as the capital market.
 The Seventh Chapter miscellaneous, which discusses other topics that are relevant to the
board and the market. To help the board from avoiding mistakes.

The laws and regulations of the Security and Exchange Board of India are very important and
must be followed seriously by the people who are entitled or registered with the stock exchange
and capital market of India. The SEBI Act, 1992 is the supreme power of the securities market of
India and has the authority to make laws and regulations. And these rules and regulations are
applied to all the listed companies, their board of directors, key managerial personnel of such
companies, investors, and all the other companies who are associated with the security market
sector.

Scope of Act
The Preamble of the SEBI Act, 1992 provides that SEBI came into force to cover two objectives:

 To protect the interests of investors in Securities.

 To promote the development and regulations of the securities market.
All the provisions and regulations are made to achieve their goal of improving the market and to
reach their goal. SEBI acts like a mini-state as it works includes executive, judiciary and
legislature. Section 11 of the SEBI Act allows the board to work on its objective.
SEBI controls:
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 The regulations of the stock exchange and capital market.

 Prohibition of fraudulent and unfair trade.
  Improving education and training of intermediaries of the securities market.
 Promoting investors and registering intermediaries.
 Regulating substantial acquisition of shares and takeovers of companies.
 Calling for information and records.
 Conducting inquiries of audits and stock exchanges.

SEBI is India’s capital market regulator and is trying to benefit the investors by:

 Increasing the trading volumes

 Syncing with the Global Markets
 Hedging
SEBI helped the market participants by consolidating their settlement functions at a single
clearing meeting and by reducing the effective trading cost for investors. The board improved the
market by allowing the contributions of the foreign participants through certain background
checks before entering the Indian Market.

Advantages
Depository Systems play an important role as they help in eliminating the risks of holding
physical securities. Initially, the buyers had to keep an eye on the transfer of shares but now the
depository systems have reduced the risks by involving technology in the process. This helped in
improving the chances of foreign investments in the Indian Capital Market. The advantages of
Depository Institutions are:

 It reduced the chances of forgery and delay.

 Unlike physical transfer, these transfers are immediate.
 The securities are controlled by the stock exchange.
 It reduced the chances of bad delivery, fake certificates, and signature related issues.
 The fear of losing the certificate is reduced as everything is online.
 This electronic system is time-saving.
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 It restricted the transfer of Benami properties.

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Rights of Transferee
The rights of transferee are:

 The transferee must receive the share certificate in due time.

 The transferee must receive a copy of the annual report with the auditor’s report.
 The transferee must receive the dividends in due time.
 The transferee must inspect the statutory registers at the registered office.
 The transferee must receive corporate benefits like rights, bonus, etc.
 The transferee must receive the residual proceeds.
 The transferee must receive an offer in case of takeover or buyback under SEBI
regulations.

So, SEBI introduced the Depositories Act, 1996 to make share transfer secured and easily
accessible because SEBI is trying to protect and develop the interest of the investor in the Indian
Market.

SEBI v. Sahara9
Background
Initially, there was a floating-issue of Optionally Fully Convertible Debentures (OFCDs) with
Sahara India Real Estate Corporate Limited (SIRECL) and Sahara Housing Investment
Corporation Limited (SHICL) which affected the collective subscription from 25th April 2008
up to 13th 2011. The company bagged roughly Rs. 17,656 crore during this period. This whole
amount was collected in the name of ‘Private Placement’ from 30 million investors without
fulfilling the requirements needed to comply with public offerings of securities. So, as a result,
the Whole Time Member of SEBI passed an order on 23rd June 2011 to refund the money which
was collected from the investors and restrained the companies promoters including Mr. Subrata
Roy from reaching the securities market. Sahara appealed the orders of the Whole Time Member
in front of the Securities Appellate Tribunal (SAT) and the appeal was dismissed by SAT
through an order on 18th October 2011. In the end, Sahara appealed in front of the Supreme
Court against the SAT order.
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Issues
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[Link]
There were many issues raised while the Supreme Court was interpreting the various provisions
of the SEBI Act, the Companies Act, and the Securities Contract (Regulation) Act, 1956. The
issues were:

 The first issue was that, whether SEBI has its jurisdiction over this matter under Section
11, 11A, 11B of SEBI Act and Section 55A of the Companies Act or this matter comes
under the Ministry of Corporate Affairs.
 The second issue was that, whether the hybrid Optionally Fully Convertible Debentures
comes under the category of ‘Securities’ as defined in the Companies Act, SEBI Act, and
SCRA to allow SEBI to have jurisdiction to investigate the case.
 The third issue was that the OFCDs subscribed by the people is a private placement or
not. If not, then who has jurisdiction over the matter.
 The fourth issue was that, whether the provisions given under Section 73 of the
Companies Act is applied over the case or not.
 The fifth issue was that, whether the provisions provided under the Public Unlisted
Companies, 2003 will have jurisdiction over this case.
Arguments and Supreme Court Judgments
In this case, the Supreme Court held that SEBI has no jurisdiction to investigate or adjudicate
this matter as the SEBI Act allows SEBI with special powers to protect the interest of the
investors. The powers given to SEBI cannot supersede other regulations provided under different
laws which means SEBI must respect the provisions of other laws and must not conflict with the
Ministry of Corporate Affairs where the interests of investors are at stake.

The Supreme Court also laid down objectives for the enactment of the SEBI Act and inserted
Section 55A in the Companies Act to provide special powers to SEBI in the matters related to
the transfer of securities. So, the Supreme Court advised that SEBI has the jurisdiction to
administer the listed public companies in matters related to the transfer of securities and also in
those public companies where there is intended to obtain the securities which are listed under the
Stock Exchange of India.
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The Supreme Court stated that the OFCDs issued by the companies are in the nature of ‘hybrid’
instruments, so it doesn’t come under ‘security’ within the definition provided by the Companies
Act, SEBI Act, and SCRA. As the definition of ‘Securities’ provided under Section 2(h) of
SCRA contains ‘marketable security’ rather ‘hybrid instruments’. So, the Court can not question
the marketability of the instrument as it was offered to millions of people and debentures came
under security as described by the provisions of SEBI Act, the Companies Act, and SCRA.

The Supreme Court described the intentions of the companies was to show OFCDs as the public
placement but they don’t act like that when offered to more than 50 people. Section 67(3) states
that any security which is offered and subscribed by more than 50 persons will be considered as
a public offer which gives the jurisdiction to SEBI and the companies have to comply with all
the legal provisions related to this matter.

Sahara argued that the Companies Act is not applicable as it is applied to only listed companies
and no company can be forced to get listed on the stock exchange. The Supreme Court rejected
this argument and stated that the law is clear and impartial. The Supreme Court also observed
that Section 73(1) of the Act provides a restriction on every company intending to offer shares
and debentures to the public.

Conclusion
So, SEBI strongly believes that the investors are the soul of the securities market and they need
to protect the interests of investors for the development of the capital market. SEBI deals with all
the policies and regulations of the market. SEBI's multifaceted regulatory framework
encompasses various domains, including market surveillance, enforcement actions, disclosure
norms, and investor education. By enforcing stringent regulations and implementing robust
surveillance mechanisms.

Moreover, SEBI's proactive approach towards promoting innovation and market development
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has facilitated the growth of diverse market segments such as mutual funds, derivatives, and
alternative investment funds10. In essence, SEBI's role as a guardian of the securities market
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PrasannaChandra,“FinancialManagement-TheoryandPractice”,TataMcGrawHill,McGrawHill,New Delhi.
extends beyond mere regulatory oversight. As India continues its journey towards becoming a
global economic powerhouse, SEBI remains steadfast in its mission to uphold the highest
standards of integrity, accountability, and professionalism in the securities market, ensuring that
India's growth story unfolds on a solid foundation of trust and confidence.

Bibliography

In making and completing this assignment I took help from the following authors, journals and
websites:
 Bajpai, M. K. (2015). Role of SEBI in Indian capital market development. IOSR Journal
of Business and Management, 17(5), 22–28.

 Chatterjee, M., & Ghosh, S. (2018). SEBI regulations and its impact on Indian capital
market. International Journal of Commerce and Management Research, 4(2), 36–42.

 Dutta, A. K., & Bose, S. (2017). Role of SEBI in developing Indian capital market: An
analytical study. International Journal of Management Studies, 4(2), 51–57.

 SEBI. (n.d.). About SEBI. Retrieved from [Link]

 SEBI. (n.d.). Functions of SEBI. Retrieved from

[Link]

 Rai, D. (2019, October 22). Features of the Security and Exchange Board of India
(SEBI). iPleaders. [Link]
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