Securities Law
Sem VII MNLU
Lectures 11 & 12
Narayan Prabhat Ranjan (2023)
Visiting Faculty
Maharashtra National Law University
1 27/09/23
Lectures: 11 & 12
Securities and Exchange Board of India
2 27/09/23
Contents
v Lectures 11 & 12:
§ Objectives of SEBI
§ Evolution of Regulatory Mechanism in
Securities Market
§ SEBI:
• Establishment
• Functions
• Powers
§ Some Case Laws
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Objectives of SEBI
01 02 03
Protect Promote Regulate
Protect the Promote the Regulate the
interests of development Securities
investors in of Securities Market
Securities Market
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Establishment of SEBI
⨮ Established in 1988, as an
administrative body which
functioned under the
administrative control of the
Ministry of Finance of the
Central Government
⨮ In 1992 given statutory
standing by the Act – “The
Securities and Exchange
Board of India”
⨮ Headquartered in Mumbai
with regional offices in New
Delhi, Kolkata, Chennai and
Ahmedabad with small local
branch offices across the
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Evolution of Regulatory Mechanism
1. The Capital Issues (Control) Act, 1947: restricted issuer’s access to the securities
market and controlled the pricing of issues.
§ Its origin was during the war in 1943 when the objective was to channel resources to support
the war effort.
§ The Act was retained with some modifications as a means of controlling the raising of capital by
companies and to ensure that national resources were channelled into proper lines, i.e., for
desirable purposes to serve goals and priorities of the government, and to protect the interests
of investors.
§ Under the Act, any firm wishing to issue securities had to obtain approval from the Central
Government, which also determined the timing of new issues by the private sector companies,
the composition of securities, interest/return which could be offered, the timing and frequency
of the bonus issues, the amount of prior allotment to the promoters, flotation cost and the
premium to be charged on securities.
2. The Companies Act, 1956: set 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
3. The Securities Contracts (Regulation) Act, 1956: provides for regulation of
transactions in securities through control over stock exchanges
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Establishment of SEBI
⨮ Established as a statutory body on 30.01.1992 – initially by way of an
ordinance and later got ratified as an Act with the same date of the
ordinance as coming in to force
⨮ Extends to the whole of India
⨮ “Securities and Exchange Commission” of USA is a similar organisation
⨮ The Supreme Court of India in “Swedish Match AB v. SEBI (2004) 11 SCC
641” explained the objectives of the SEBI Act and rationale for setting up
an expert body like SEBI and said – “it was felt that a regulator who was
aware of of the realities of that field should be ready to regulate that field.
Demand for regulators who were not mere Government officials but
people who are experts in the field came up”. In the Indian context, this
rationale was invoked for the establishment of an expert body to regulate
the securities market after the Securities Scam in 1992.”
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Establishment and Incorporation (Sec 3)
⨮ A Board will be established by the name of The Securities Control Board
of India (SEBI)
⨮ It will be:
§ A body corporate;
§ Having perpetual succession and a common seal;
§ With power to acquire, hold and dispose of property, both movable and
immovable;
§ To contract, and shall, by the said name, sue or be sued;
§ The head office of the Board shall be at Mumbai; and
§ The Board may establish offices at other places in India.
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Management of SEBI (Sec 4)
⨮ Board will have 9 members
⨮ General superintendence, direction and management shall vest in a Board of members
⨮ The Chairman shall also have powers of general superintendence and direction of the affairs of the
board and exercise all powers
⨮ The Chairman and the other members shall be person of ability, integrity and standing who have the
capacity, special knowledge and experience which shall be useful to the board
Two members Five members to be
One member from
Chairman appointed by the appointed by the
Central Government RBI Central Government
• From amongst the • From amongst the • Of whom at least three
officials of the Ministry officials of the Reserve shall be whole time
of the Central Bank of India members
Government dealing
with finance and
administration of the
Companies Act, 2013
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Functions of SEBI
3.
1. Protective 2. Regulatory Developmental
• These functions are performed by SEBI • These functions are basically • This regulatory authority performs
to protect the interest of investors and performed to keep a check on the certain development functions also
other financial participants. These functioning of the business in the that include but they are not limited
include: financial markets. These functions to:
include:
• Checking price rigging • Designing guidelines and code of conduct • Imparting training to intermediaries
for the proper functioning of financial
intermediaries and corporate.
• Prevent insider trading • Promotion of fair trading and
• Regulation of takeover of companies reduction of malpractices
• Promote fair practices • Conducting inquiries and audit of
exchanges • Carry out research work
• Create awareness among investors • Registration of brokers, sub-brokers,
merchant bankers etc. • Encouraging self-regulating
• Prohibit fraudulent and unfair trade • Levying of fees organizations
practices • Performing and exercising powers
• Buy-sell mutual funds directly from
• Register and regulate credit rating agency AMC through a broker
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Powers of SEBI Sec 11(3) of the SEBI Act vests the
powers of a Civil Court: discovery and
production of books of account,
summoning and enforcing the
attendance of a persons and examining
them on oath, inspection of books,
registers, documents of persons listed
under Sec 12, issuing commissions for
examination of witnesses or documents.
SEBI can examine the Book of Accounts
and other vital documents to identify or
gather evidence against violations. If it
finds one violating the regulations, the
regulatory body can impose rules, pass
judgements and take legal actions against
violators.
SEBI has been entrusted with the power to
formulate pertinent rules and regulations. Such
rules tend to encompass listing obligations,
insider trading regulations and essential
disclosure requirements. It also formulates rules
and regulations to eliminate malpractices in the
securities market.
11 27/09/23
Case Law – 1
In the matter of Ruchi Soya Industries Ltd. (March 19, 2021)
Final Order Under Sections 11(1), 11(4) and 11B of the Securities and Exchange Board of
India Act, 1992
Issue: Fraudulent Trade Practice
⨮ SEBI directed seven entities to disgorge a total of ₹5.75 crs of ill-gotten gains made
through alleged fraudulent trade practices in the shares of Ruchi Soya Industries in 2012.
⨮ SEBI had issued show cause notice in 2017 to these seven entities alleging that some of
these entities contributed to the price rise in the shares of Ruchi Soya Industries during the
last 30 minutes of trading at NSE cash market on September 27, 2012 in order to influence
the settlement price for the futures contracts of Ruchi Soya expiring on the same day.
⨮ SEBI imposed a total penalty of ₹25 Lakhs on these entities.
12 27/09/23
Case Law – 2
Mr. Neeleshkumar Radheshyam Lahoti (Noticee) (In the matter of
Supreme Tex Mart Limited)
Adjudication Under Sections 11C(2) read with 11C(3) of the Securities and Exchange Board of India Act,
1992
Issue: Every person whom information is sought should fully co-operate with the investigating officer and promptly
produce all documents, records, information as may be necessary for the investigations.
⨮ SEBI imposed a penalty of ₹8 lakh on the Noticee under the provisions of Section 15HB of the SEBI Act.
⨮ It was established that the Noticee provided incorrect information to the Investigating Authority (IA) of SEBI and
hampered the process of investigation thus violating the provisions of Section 11C(2) read with Section 11C(3) of
the SEBI Act, 1992.
⨮ It was a deliberate attempt of Noticee to misguide investigation.
⨮ Section 11C(3) of the SEBI Act empowers the IA to obtain records, documents, information etc., as considered
relevant or necessary for the purpose of investigation.
⨮ Section 11C(2) of SEBI Act casts an obligation on every person associated with the securities market to preserve
and to produce to the Investigating Authority or any person authorised by it in this behalf, such records, documents,
information which are in their custody or power.
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Case Law – 3
Mrs. Poonam Haresh Jashnani, Mr. Varun Haresh Jashnani and Haresh
Parmanand Jashnani (Noticees) (In the matter of United Spirits Limited
Final Order Under Sections 11(1), 11(4) and 11B of the Securities and Exchange Board of India Act, 1992
Issue: In the matter of insider trading activity of certain persons in the scrip of United Spirits Limited
⨮ Diageo plc made a public announcement to buy 26% shares of United Spirits Limited before markets opened.
⨮ Price went up from ₹2,557/- to ₹2,853/- thereby showing a gain of 11.57%, in a single day.
⨮ Upon investigation, SEBI found that Mr Nishat who was the Global Business Development Manager (M&A) of Diageo was privy
to Unpublished Price Sensitive Information (UPSI).
⨮ Mr Nishat through his in-laws made wrongful gain of ₹1.01cr, using this UPSI.
⨮ SEBI passed a final order dated January 10, 2020 under Sections 11(1), 11(4) and 11B of the SEBI Act against the noticees for
violation of provisions of PIT Regulations and SEBI Act by carrying out insider trading activities in the scrip of USL.
⨮ Vide the said Order, noticees were inter alia directed to disgorge the wrongful gains made by them along with interest at 12%
p.a. from April 11, 2014 till the date of payment and to not deal in the securities market for a period of seven years from the
date of payment of disgorgement amount.
⨮ Further, Shri Nishat was directed not to deal in the securities market for a period of seven years from the date of the Order and
restrained from associating with any listed public company for a period of seven years from the date of the Order.
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Conclusion
15 27/09/23
